Egypt inflation back into double digits

Egyptians line up to buy bread from a kiosk in Cairo. Food costs jumped by 3.8 percentage points last month. Khalil Hamra / AP Photo

Inflation in Egypt accelerated to double-digit figures again in February, in a sign that last month’s devaluation of the pound has boosted import costs for the country’s manufacturers and consumers.

Inflation hit 10.6 per cent, up from the previous month’s figure of 9.7 per cent, after food costs, which account for 40 per cent of the basket of goods, jumped by 3.8 percentage points.

“Global food prices are still below the price they were one year ago – so this is the result of the depreciation of the pound,” said Jason Tuvey, an emerging markets economist at Capital Economics.

Inflation is likely to drop by about 3 per cent in July, as the effect of energy subsidy cuts last year is no longer included in the index, Mr Tuvey said.

Egypt’s central bank has maintained the Egyptian pound with forex market purchases, but on January 15 allowed it to slide against major currencies.

The pound currently trades at EGP 7.6 to the dollar – down from EGP 7.2 to the dollar at the end of 2014.

The depreciation of the pound led to “the fastest rise in input prices in seven months”, according to analysts at HSBC.

Benefits to exporters from the weaker pound have largely been counteracted by European quantitative easing, however. Europe accounts for about 25 per cent of Egypt’s exports.

The euro has fallen about 7 per cent since the announcement in January of the European Central Bank’s intention to lead the purchase of bonds forecast to cost €60 billion (Dh237.1bn) a month.

Capital Economics estimates that the pound will need to fall below EGP 8.25 to the dollar for the country’s exports to become competitive.

February’s inflation figures come ahead of a high-profile conference in Sharm El Sheikh this week, in which the government will bid to woo foreign investors to Egypt.

The Egyptian economy has struggled to recover from the instability that followed the revolutions of 2011 and 2013.

Egypt recorded a real GDP growth rate of 2.2 per cent last year, according to the IMF. But real GDP per capita growth was just 0.2 per cent, when population increases are taken into consideration. This means that increases in living standards are especially vulnerable to any uptick in inflation.

The government of the president Abdel Fattah El Sisi, with financial and economic assistance from its Arabian Gulf allies, has introduced a number of measures to hasten the pace of growth. This month, a new investment law was approved by the Egyptian cabinet. The law is intended to improve the ease of doing business in the country.

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