Inflation jumped to 32.5%, highest rate since 1980s

Mohamed Ayyad
4 Min Read
Annual core inflation reached 12.3% in June, up from 12.23% in May

The inflation rate continued to rise to 32.5% year-on-year at the end of March; the rate is considered the highest since the mid-1980s, compared to 31.5% in February. This actually exhausted the pockets of Egyptians, especially during the difficult economic time faced by the country.

The monthly inflation rate declined to 2.1% in March compared to 2.7% in February and 4.3% in January.

Food and beverage prices jumped by 43%, and the price hikes of food contributed 22.4% to the annual inflation change rate.

The most prominent commodities that saw an annual increase at the end of March included rice by 49.2%, flour by 76.4%, pasta by 25.7%, fresh and frozen meat by 42%, poultry by 28.5%, and preserved and processed meat by 54.6%.

Egypt has seen huge jumps in the prices of essential and non-essential goods since the flotation of the pound in November 2016.

A recent report by the investment bank Arqaam Capital expected annual headline inflation to remain elevated until early Q4 2017, with the impact of the negative base effect amplifying the seasonal factors’ impact. In early summer, the bank said it expects the second round of fiscal reforms to take place (energy price hike, annual electricity re-pricing, and 1% VAT increment), coupled with the usual seasonal summer effect. Headline inflation will spike to a mid-30s percentage level, dropping to a high-20s percentage around November 2017, registering between ten and 20 in 2019, and breaking the single digit level in early 2020. “We continue to expect an interest rate cut in late 2017/early 2018—when monthly inflation stabilises—without the need for a hike in the due time due to the ineffectiveness of interest rate movements on inflation,” the report read.

Moreover, it added that the government’s decision to use a lower rate of EGP 16 to the US dollar now aims to reduce the expected seasonal inflationary pressures. An anticipated 10% bonus for government employees and the tax credit they expect to be implemented soon will both help prevent a further erosion of consumer spending growth in the short term, which had come under pressure since the flotation.

Egyptians spend more than 41% on food and beverages, according to an income and expenditure study by the Central Agency for Public Mobilization and Statistics (CAPMAS).

Abu Bakr Imam, head of the research department at Prime Holding Company, said that the inflation exhausts the middle class and low-income people, and the government has to speed up protective measures to help them.

He added that the inflationary wave has not ended so far, as the government wishes to increase the value of the VAT starting from the next fiscal year, which will start in July 2017, as well as the expectations about increasing fuel prices.

Inflation will not decline unless the government succeeds in reducing the budget deficit estimated at EGP 370bn in the new budget, which will push the government to borrow from banks, raising the debt and increasing the cash supply that leads to the inflation of prices and the decline of the purchasing power of the pound.

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