Egypt's inflation drops for third consecutive month amid devaluation speculation

December inflation is at 33.7 per cent, down from 34.6 per cent the previous month

A farmer carries rice north of Cairo. Reuters
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Egypt’s inflation dropped for a third consecutive month in December, a trend that may be halted by another round of devaluation in the coming weeks.

Consumer prices in urban areas of the country grew 33.7 per cent year-on-year last month, down from 34.6 per cent in November and 35.8 per cent in October.

It was the slowest rate since May, according to data published by the country’s statistics agency, Capmas, on Wednesday.

Inflation hit a record 38 per cent last September.

December's drop in inflation comes amid growing speculation that Egypt is likely to further devalue its pound, a move that is certain to increase already soaring prices.

Devaluation would particularly hit food prices, the main component of the basket of goods and services on which inflation is calculated.

Egypt has devalued its pound three times since early 2022, shedding about 50 per cent of its value.

The dollar has been trading at banks at around 31 pounds for months, but it is selling at around 50 pounds on the parallel market.

The weakening pound adds to an economic crisis defined by a persistent foreign currency crunch and a rapidly growing debt. Servicing that debt is swallowing a large chunk of state funds.

The lack of foreign exchange flexibility, together with the slow pace of selling state assets, have derailed a $3 billion rescue package reached with the International Monetary Fund late in 2022 as Egypt plunged into its worst economic crisis in decades.

President Abdel Fattah El Sisi’s government is trying to increase the size of the programme. Its review by IMF experts has been repeatedly delayed while the most populous Arab nation grapples with the fallout from the war in Sudan, its neighbour to the south, and the Israel-Gaza war on its eastern border.

US Treasury Secretary Janet Yellen is scheduled to meet top Egyptian finance officials in Washington this week amid talks between Cairo and the IMF on expanding the $3 billion rescue package.

The IMF delayed disbursements of about $700 million in 2023, but in December said it was in talks to expand the programme.

The Treasury said Ms Yellen would meet Egyptian Finance Minister Mohamed Maait and Rania Al Mashat, minister of international co-operation.

Apart from the risk from another devaluation, inflation could spike again this month under pressure from sharp price increases announced days ago for key services including electricity, mobile phone and internet charges and higher fares on the Cairo metro used daily by an estimated five million commuters.

However, these price hikes could be offset due to favourable base effect, according to a note by Nadeem Brokerage.

“For the month of January 2024, assuming no changes to the official exchange rate, we expect the annual (inflation) reading to fall closer to 30 per cent,” it added.

Egypt's government insists that the economic crisis was not of its making, blaming it on the Covid-19 pandemic and later the Russia-Ukraine war.

Egypt's annual import bill runs at around $100 billion, with the country of 105 million often the world's largest wheat importer.

Critics, however, contend that the crisis is partially due to excessive borrowing and multi-billion-dollar infrastructure projects such as new cities and state-of-the-art transport schemes such as electric trains and monorails that were either non-essential or could have waited.

Mr El Sisi, who personally oversees the economy and the projects, counters by saying Egypt needs to modernise infrastructure to attract investors and accommodate a rapidly growing population.

In power for a decade, he was re-elected last month to a new term that will see him in office until 2030.

Updated: January 11, 2024, 6:39 AM