Will commodity prices go down as pound strengthens?

Samira Saeed
8 Min Read

As the value of the US dollar continues to decline against a strengthening Egyptian pound, Egyptians are preoccupied with a major question: will prices go down?

Companies expressed different opinions on cutting down the prices of their commodities, impacted by the exchange rate. Some intend to lower the price tags on their products; others will maintain their current pricings, saying they have bought input requirements when the exchange rate was at EGP 18-19 and will, hence, not be able to respond to the current exchange rate until their stock of high-priced input is sold.

An official source at the Arabian Food Industries Company (Domty) said that his company will move its prices in accordance with the fall of the exchange rate. He added that the company will lower its prices only if the exchange rate remains down and does not hike once again. He noted that the company will reconsider the price lists in the coming two months.

He explained that the company did not raise its prices significantly during the wave of the dollar exchange rate hike after flotation. “We did not raise the price of all our products but only those that were costing more to produce,” he added.

Overall, the source said that a lower exchange rate will not impact prices directly, as distributors and traders have a stock of high-cost products, noting that prices may go down in a few months as the official price of the greenback at customs falls down accordingly.

Moreover, he pointed out that companies will respond differently. “While some companies did not buy high-cost production inputs and raised prices slightly, others bought large quantities at the higher prices and will not be able to bring the prices down until they run out of the high-priced stock,” he explained.

He expressed his worry that even if official prices of goods decline, traders will continue selling at the high prices, urging the need for tighter control on the market.

As for poultry, managing director of Mansoura Poultry, Mahfouz Farid, said that his company will cut the prices down in the coming period.

He added that commodity prices are on their way down slowly, noting that the impact of the exchange rate will come up at the end of February as traders dispose their staked goods and buy new commodities at lower prices.

He explained that the company has a stock of high-cost production inputs, so it will reduce the price immediately after the new, low-priced stock arrives.

The CEO of Obourland, Ashraf Hamed, said that his company does not intend to raise prices again as the pound strengthens to EGP 16 against the USD, adding that it will cut the prices by 15% if the exchange rate stabilises at EGP 15.

Hamed pointed out that the strong competition, both at the level of distributors and companies, will push the prices down if costs decline. “It is naïve to expect lower prices according to an intraday lower exchange rate,” he stressed.

He explained that the company did not raise prices at the same level of rising costs, as current indicators point to decline in milk powder prices worldwide.

On the other hand, Amin Farid, the chief financial officer at Delta Sugar Company, said that his company will not lower prices on the short term, as it had bought a stock of input requirements enough for the entire year at a higher price.

Similarly, Hani Berzi, chairperson of Edita Food Industries, told Daily News Egypt that the company will maintain current prices as the purchasing power declined, leading stock to accumulate.

He added that if the exchange rate remains going down over the coming two months, the company will revise its price lists and lower prices of its products.

A source at Juhayna Food Industries said that the company will not reduce its prices, as it had bought a stock of products and raw materials at high prices, adding that the company did not actually implement full price increases yet.

Juhayna’s CEO, Seif El-Din Thabet, earlier told Reuters that his company raised product prices during the past year by about 35% gradually, expecting a slight increase between 5% and 10% in prices in the coming period.

Turning to the price of cars, chief investment officer at GB Auto, Menatalla Sadek, said that the decision to lower car prices on the back of an improving exchange rate is difficult and controlled by several factors, including the high-priced stock of cars and the high cost of domestic production input that are not linked to the USD and represent 50% of total production costs.

She added that the company will wait to ensure that the official customs dollar exchange rate stabilises at EGP 16.

Moreover, she noted that the Egyptian market is currently living a period of delay between what happens in the exchange rate and the impact on prices.

Yet the prices of a number of food commodities declined timidly over the past week, such as oil, sugar, and wheat, with expectations of a similar decline in prices of a number of commodities in the coming period if the dollar’s exchange rate continues to go down.

The pound has appreciated by 12% over the course of the past two weeks, strengthening from EGP 18.99 on 2 February to about EGP 16.

Apart from food commodities, electrical appliances—highly impacted by the exchange rate hike—registered a price decline by 5-15% within the past few days, driven by the fall of purchasing power and the decline in the exchange rate.

Wood prices have fallen by about 15% in conjunction with the dollar’s decline; the price ranges now reach between EGP 5,200 and EGP 7,300 per metre.

The prices of many commodities have doubled after the flotation of the pound on 3 November 2016, which caused its value to drop by more than 200%, depreciating from EGP 8.78 to EGP 18.5, before it strengthened to EGP 16.

Inflation leaped over the past three months as a result of severe actions taken by the government to straighten out the economic path, reaching 29.6% on an annual basis in January. The core inflation recorded by the Central Bank of Egypt registered 30.8%.

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