Britain's consumer price index (cpi) is calculated monthly by adding together the individual costs of a 'shopping basket' of goods and services bought by a typical family over the year. Because the average spend on food and beverages is 11.8 per cent of a family's total, 11.8 per cent of the shopping basket (by value) is composed of those items. They include 38 fruit and vegetable products ranging from avocados to vegetable pickle. (Oddly, crisps fall into the fruit and veg category.) Between January and February, the food and beverage component of the cpi went up by 1.1 per cent. It might not sound much, but over a year that would add 14.0 per cent to prices.
As it was, cpi as a whole went up by 4.4 per cent in the year to February, even though the Bank of England is mandated to keep inflation at 2 per cent or, at worst, within a 1-3 per cent band. In the eurozone, the European Central Bank (ecb) is tough on inflation, tough on the causes of inflation. After holding its 'refinancing' interest rate at a record low 1 per cent for 23 months, the ecb decided in April that the eurozone's 2.4 per cent rate of inflation was unacceptable. It raised the refinancing rate to 1.25 per cent and left the door open to further increases later in the year. On the same day, the Bank of England decided to leave its Bank Rate at 0.5 per cent for a 26th month in the expectation that inflation will subside naturally without the need for higher rates.
As long as investors foresee further rate divergence they will tend – other things being equal – to prefer the euro to the pound, but this will come as no consolation to growers and exporters in Portugal. As well as the risk of their currency becoming even less competitive, they now face more expensive borrowing and whatever austerity measures might be introduced as part of the European Union's bailout package. Portuguese Agriculture Minister António Serrano has called for more of the country's 11.1 per cent unemployed to work on the land, but there is no sign of a queue forming to replace the immigrant labour force – mainly from Thailand – that currently fills the gap.
Post-revolutionary Egypt faces no such challenges. A third of the workforce is involved in agriculture and the sector accounts for about a sixth of gross domestic product. Land reclaimed from the desert is a significant proportion of the area under cultivation. Exporter Trade Waves recently began a reclamation project that will put another thousand acres under grapes, citrus and pomegranates. The company and others like it will not be in the least distressed that the Egyptian pound continues to drift lower against its long-standing benchmark, the US dollar. At the beginning of the year, one dollar cost E£5.80, but in early April the central bank’s website offered dollars at E£5.98, the highest in six years. The central bank says it will allow a gradual depreciation and E£6.00 to the dollar is close at hand; a target of E£6.30 by the end of the year is not unreasonable.
Given their close links to the US dollar, though, the competitiveness of Egyptian exporters in the UK depends mainly on how sterling is faring against the US currency. So far this year it has done well, rising by nearly 7 per cent, but there are signs it could be running out of steam, bumping its head on technical resistance formed by the highs of last January. Importers in need of dollars should consider stocking up at current levels: buying at a price close to its lowest in 15 months would certainly not be considered a sackable offence.
Chris Redfern is a dealer at London-based Moneycorp, which has been dealing in foreign exchange since 1979 and last year traded over €13bn in currencies. The company has been accredited to iso 9000 certification since 1996 – a unique achievement in the foreign exchange industry. Moneycorp provides foreign exchange and treasury management services to help companies save money on their international payments and manage financial risk.
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