The Clap
CAPMAS announced that Egypt’s annual urban inflation rate decreased to 29.8% in January, down from 33.7% in December, which was lower than what analysts had predicted.
What
A Reuters poll of 18 analysts had anticipated a slowdown in annual inflation to 32.5% in January, but surprisingly, it slid to down to 29.8%.
Prices rose by 1.6% compared to a 1.4% increase in December, with food prices increasing by 1.4%, down from 2.1% in December.
Zoom Out
Over the year ending in January, food prices saw a rise of 47.5%, lower than the 60.5% increase observed in the year ending in December.
Surprised?
If you too are surprised, there are two things you should keep in mind…
How it’s calculated:
Inflation is calculated based on the Consumer Price Index, which factors in the price increases of the following items with their respective weights: Food and Beverages (32.73%), Tobacco and Related Products (4.41%), Clothing and footwear (4.38%), Housing, water, Electricity and other fuels (19.46%), Furnishings, household equipment (3.97%), Medical care (8.54%), Transportation (6.75%), Communications (2.78%), Recreation and Culture (2.18%), Hotels, Cafes and Restaurants (4.97%), Miscellaneous Goods and Services (4.37%), and Education (5.56%).
Education is price-less:
In October 2023, the Central Bank of Egypt (CBE) stated that education prices, usually part of the October Consumer Price Index (CPI) annually, were omitted by CAPMAS. Now, they’ll factor into inflation calculations for February 2024, boosting the favorable base effect on yearly inflation rates.
- Claps Class – Favorable Base Effect: Think of the favorable base effect like a starting point for a race. If the starting line moves closer to the finish line, it makes it easier for runners to appear to finish faster even if they run at the same speed. Similarly, by shifting education prices to February, it made the starting point lower for calculating inflation, making it seem like the inflation rate decreased more than it actually did.
Now What
In a report by J.P. Morgan, the world’s largest bank by market cap, it’s observed that inflation has been slowing down for four months, even though electricity prices and the parallel market FX rate increased in January.
This suggests that the sharp rise in the parallel rate may not have had a big effect due to lower demand at those levels or a delay in its impact, which might show up in the coming months, as per the report.
