Inflation in urban parts of Egypt rose to its highest since the aftermath of a currency crisis in 2016, following a surge in food prices linked to the devaluation of the country’s pound.
(Bloomberg) — Inflation in urban parts of Egypt rose to its highest since the aftermath of a currency crisis in 2016, following a surge in food prices linked to the devaluation of the country’s pound.
Consumer prices climbed an annual 32.7% in March, the fastest in almost six years but less than forecast by most economists. The increase from 31.9% in February was driven by a 62.9% rise in food and beverage costs, the state-run statistics agency CAPMAS said Monday.
Yet even as price gains quickened, they did so at a slower pace than the month before — a development that’s in part a result of statistical effects because declines in the currency a year ago created a high base of comparison.
Behind the acceleration is a recent plunge in Egypt’s pound that’s filtering through the economy. A hike in fuel prices and rising demand around the holy month of Ramadan, which began in the fourth week of March and is marked by large meals and gatherings, were among other contributing factors.
“For the month of April, we expect a shift towards disinflation due to a higher magnitude of the favorable base-year contribution,” economists at Cairo-based Naeem Brokerage said in a report. Food prices may also “cool off a bit,” they said, “as demand-pull factors are likely to ease post Ramadan.”
Should Egypt allow the pound to depreciate by another 10% after the fasting month, annual inflation may reach 33%-34% by the end of June, according to Naeem.
Three Devaluations
Egypt, a major importer of wheat and other commodities, has devalued its pound three times over the past year, driving up the cost of most foreign-origin goods already under pressure from trade restrictions and the economic fallout of Russia’s invasion of Ukraine.
On a monthly basis, prices grew 2.7%, compared with 6.5% in February. Core inflation, the gauge used by the central bank that strips out volatile items, came in at 39.5%, down from 40.3% in February.
Soaring prices are an especially painful blow in the Middle East’s most populous country where about half its 104 million people live near or below the poverty line. The government has said tackling the issue is a top priority.
The central bank on March 30 raised interest rates by 200 basis points in its latest bid to contain price pressures. It was the year’s first hike after the regulator hit pause in February, saying it was assessing the impact of a wave of increases in 2022.
Higher rates, though, offer little in the way of an immediate solution for a country facing its worst foreign-exchange crisis in years.
Pressure is building again on the pound as Egypt races to find foreign investment to tackle its external funding gap, including through an ambitious plan of selling stakes in at least 32 companies.
(Updates with core inflation figure in eighth paragraph.)
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