Consumer prices in Egypt have surged at an unprecedented rate, reflecting mounting pressures on food costs following the Muslim feast holiday and increased summer spending.
In June, urban areas of the country witnessed a significant acceleration in inflation as annualised rate rose to 35.7%, up from 32.7% recorded in the previous month.
This staggering increase represents the highest inflation rate recorded since December 2009, according to figures released on Monday by the state-run CAPMAS statistics agency.
The sharp upswing in inflation was primarily driven by a 65.9% rise in food and beverage costs, which is the largest component of the inflation basket.
Also, the statistical effect of a low base from the previous year further contributed to the overall inflation rate. On a monthly basis, inflation slightly eased to 2.1% in June, down from 2.7% in May.
The current surge in inflation in Egypt surpasses the peak witnessed in the aftermath of the currency crisis in 2016, underscoring the challenges faced by the government as it strives to revitalize an economy still reeling from the aftershocks of Russia’s invasion of Ukraine.
In its efforts to secure a $3 billion deal with the International Monetary Fund, Egypt devalued its currency three times since March 2022 but has maintained stability since the last devaluation in January. Although these initial moves helped drive up the cost of imported goods, they hampered the government’s attempts to reduce spending while grappling with one of the country’s most severe foreign-currency crises in years.
Recently, Egypt increased the prices of certain subsidized commodities like rice and sugar while President Abdel-Fattah El-Sisi warned that the nation cannot bear further cost increases, a statement widely interpreted as downplaying expectations of another devaluation in the near future.
Inflation has been a prominent concern for the central bank, even as the Monetary Policy Committee opted to keep interest rates unchanged last month, despite them being significantly lower than the inflation rate. The central bank’s target is to achieve a price growth rate of 7%, with a margin of plus or minus 2 percentage points, by the fourth quarter of next year.
Economists suggest that authorities are diligently working to accumulate sufficient foreign currency reserves before implementing another devaluation and transitioning to a market-determined exchange rate, as pledged. Central bank Governor Hassan Abdalla previously indicated that higher interest rates might have limited impact in curbing price growth, as the main drivers were supply-related issues.
The Monetary Policy Committee is scheduled to convene again on August 3.