Inflation soars by 24.3% in Egypt in December

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Egypt is seeing a dramatic jump in the country’s annual urban consumer price inflation. The annual inflation rate in Egypt rose to 24.3% in December 2016, compared to 20.2% in November, according to a statement issued by Egypt’s Central Agency for Public Mobilisation and Statistics (CAPMAS), according to a report in Daily News Egypt.

The statement attributed the increase in the inflation rate to price rise of food and beverage sector as they registered an increase of 29.3%, representing a 15.12% increase in the consumer price index (CPI).

However, the CAPMAS said that the prices of commercial goods for tobacco and related products increased by 25.6%, housing, water, electricity, gas and fuel services by 8.3%, and healthcare services by 33.3%.

Urban consumer inflation hit an eight-year high of 19.4% in November, the month during which Egypt abandoned its currency peg of 8.8 to the US dollar in a dramatic move that has since seen the currency depreciate roughly by half.

It accompanied the November 3 move with a 300 basis point interest rate hike to fight inflationary pressures.

Economic reforms

Despite the hike, however, inflation has risen sharply and is expected to climb further this year as the government pushes on with economic reforms, including fuel subsidy cuts and the implementation of a value-added tax (VAT).

Those moves were required to secure a $12 billion International Monetary Fund (IMF) loan.

Reham El-Desoki, a senior economist at Arqaam Capital, said in a statement that she expected that the “annual headline inflation to jump to 20% at the end of 2016 and early 2017 as the effect of higher energy prices continued to raise the prices of goods and services”.

“The high annual headline inflation is expected to linger for several years, dropping to the single digit level by the end of 2019 and early 2020. This is mainly due to the base effect and changes in the indices in previous years which now result in higher changes in the overall CPI,” she added

El-Desoki continued, “We expect core inflation to also jump, reflecting the general acceleration in price increments, especially of volatile food items included in the core index.

“We expect this trend to continue in the coming few months as importers and local vendors adjust their selling prices to compensate for the increased costs stemming from the liberalisation of the foreign exchange rate, high energy prices and higher customs tariffs, especially on imported food and personal hygiene products, household appliances, clothing, footwear and other miscellaneous goods.”

Eman Negm, another economist at Prime Holding, said that the rate is higher than expected, adding that the third quarter of fiscal year 2016/2017 is expected to witness more relaxation. However, she added that it wouldn’t fall below 20%.

Backlash from the public

President Abdel Fattah El-Sisi is under increasing pressure to revive the economy, keep prices under control and create jobs to avoid a backlash from the public.

El-Sisi predicted last month that the Egyptian pound would strengthen in the coming months and promised to ensure basics were available and affordable.

The government has expanded its social security network and some 70 million Egyptians have access to state subsidised bread.

But Egypt’s non-oil business activity shrank for the 15th consecutive month in December as inflation caused purchasing costs to rise at a near-record pace.

Economists expect the rising inflation to erode spending power, hit economic growth and prompt further rise in interest rates, which are already 15.75%.

Egypt’s central bank has held interest rates steady at two monetary policy meetings since the flotation of the currency and some economists expect further rate hikes this year. The monetary policy committee is due to meet again on February 16, 2017.

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