Consumer prices in Egypt soared at a record pace, a reflection of pressures on food costs after the Muslim feast holiday and a pick-up in summer spending.
Inflation in urban parts of the country quickened sharply in June to an annual 35.7%, from 32.7% in the previous month, according to figures released Monday by the state-run CAPMAS statistics agency. It’s the fastest in data going back to December 2009.
The upswing was fueled largely by an 65.9% rise in food and beverage costs, the largest single component of the inflation basket, as well as the statistical effect of a low base last year. On a monthly basis, the inflation rate came in at 2.1% from 2.7% in May.
The surge past the peak reached in the aftermath of a currency crisis in 2016 speaks to the challenges that now confront the government as it struggles to revive an economy battered by the aftershocks of Russia’s invasion of Ukraine.
Read More: Egypt Can’t Stand More Price Hikes After Pound Float, Sisi Says
The country, in a preamble to securing a $3 billion deal with the International Monetary Fund, devalued the pound three times since March 2022 but has kept it stable since the last one in January. The initial moves helped drive up the cost of most imported goods and stymied government efforts to cut spending as it battled its worst foreign-currency crisis in years.
Egypt recently raised the prices of some subsidized commodities such as rice and sugar. President Abdel-Fattah El-Sisi warned recently that the nation wouldn’t be able to bear more cost increases — comments widely interpreted as him downplaying expectations of another devaluation any time soon.
Inflation has been a key concern for the central bank, even as its Monetary Policy Committee last month left interest rates unchanged at a level far below inflation. It targets price growth of 7%, plus or minus 2 percentage points, by the fourth quarter of next year.
Core inflation, the gauge used by the central bank that strips out volatile items, came in at 41% in June compared to 40.3% the previous month.
Economists say that authorities are working to build up a sufficient foreign-currency buffer before enacting another devaluation and moving to what they’d pledged would be an exchange rate determined by the market.
Read More: Egypt’s Devaluation Timeline Sets Back Clock for More Rate Hikes
Goldman Sachs Group Inc., in a report released Monday, said it believes “there are signs that inflationary pressures may have started to abate and that headline inflation may be peaking.” It cited a slowing in the acceleration in food prices on a monthly basis and more moderation expected in the coming months.
At the same time, the main risk to the inflation projection comes from the external side, Goldman Sachs said, citing continuing foreign exchange pressures and arrears continuing to build “amid slow progress on the government’s asset sale programme and broader efforts to attract more capital inflows.”
Central bank Governor Hassan Abdalla earlier this year suggested higher rates could do little to contain price growth that he described as stoked mainly by supply issues. The MPC next plans to meet on Aug. 3.
--With assistance from Abdel Latif Wahba.
(Recasts headline. Updates with core inflation, comments from Goldman Sachs report)
Author: Mirette Magdy and Tarek El-Tablawy
