Sunday, July 11, 2010

Inflation inches up to 10.7% in June 2010, higher than expected

Annual headline inflation inched up to 10.7% in June 2010, from 10.5% in May 2010, mainly due to a steady increase in annual food inflation and a higher annual change in costs of transportation, recreation, and hotels and restaurants, showed data released by the government statistics agency CAPMAS.

The annual change in food was stable at 18.49% and 18.54% in May 2010 and June 2010, respectively, while the annual change in transportation costs rose to 1.4% in June 2010, from 0.6% in May 2010, recreation and culture rose to 6.3%, from 5.2%, hotels and restaurants to 4.7%, from 4.6% and miscellaneous items to 16.7%, from 16.5% in May 2010.

The monthly change in inflation was fairly stable, registering 0.54% in June 2010, compared to 0.48% in May 2010, as the lower change in food costs, of 0.5% in June compared to 0.9% in May 2010, counterbalanced the rise in the monthly change of transportation costs, to 0.9% from 0.2% in May 2010, and recreation and culture costs to 5.7% in June, from no change in May.

For BELTONE Analysts:
"this annual headline inflation [was expected] to increase (sic...), reaching 10.9% in June, due to a higher increase in food prices, linked to the coinciding of the World Cup matches in June leading to a higher increment in costs of entertainment as well. We did not expect the effect of the rumours of higher gasoline and diesel prices, leading to a shortage in their supplies, as some suppliers cut quantities in anticipation of the change, to appear in June inflation, as was the case, with the change in transportation costs in the June CPI being attributed to higher private transportation costs, expecting the effect to be more apparent in July figures.
We expect annual core inflation to rise to 6.9% in June 2010, from 6.7% the month before, as changes in some food and entertainment items are included in the indicator. The Central Bank of Egypt will publish the annual core inflation figure on Sunday July 11th, and details later this week.
Despite the strong base effect, we expect annual headline inflation could also increase in July 2010, as the effect of the official inclusion of the higher sales tax in tobacco and building materials prices is reflected in the consumer price index, in addition to the higher changes in costs of food and some non-food items with the start of summer holidays and the lead up to Ramadan in early August.
We expect the recently announced changes in prices of natural gas and electricity for industry to be reflected in August prices, as factories are possibly billed at the end of July. We generally expect annual headline inflation will remain in the 11% to 13% range until the end of 2010, averaging 12% to 13% annually in 2010.
We believe this level of inflation will be mainly due to one-off and seasonal changes, rather than higher inherent non-food inflationary pressures in the economy.
We, therefore, do not expect a change in CBE interest rates, provided gasoline and diesel prices do not change until the end of the year, due to our belief that the CBE would not be inclined to address one-off and seasonal changes in prices with interest rates changes which would have a limited effect, if any, on such factors".

In an administrative note, following the release of the June CPI data earlier today, CAPMAS announced that it will start publishing a new consumer price index series with a base year of January 2010 using the weights for the CPI sub-items based on the 2008/2009 Household Income and Expenditure Survey. This survey was undertaken periodically every couple of years by CAPMAS, with the information from the expenditure survey being used as the basis for the weights of the different items in the CPI.