Egypt’s annual inflation rose sharply in December to its highest level in five years, piling pressure on a government struggling to find ways to deal with a deepening economic crisis.
The annual urban consumer inflation in December rose to 21.3 per cent, up from 18.7 per cent in the previous month, state statistics agency Capmas said on Tuesday.
The latest inflation figure follows the third devaluation of the Egyptian pound in 10 months — the previous ones were in March and October. The currency now trades at more than 27 pounds to the dollar, compared with just 16 pounds in February last year.
Analysts said they expect inflation to continue to rise, while the Egyptian pound will have some way to go before it reaches a “functioning equilibrium”.
Rising inflation and the slide of the embattled pound are the key features of Egypt’s economic crisis, blamed by the government entirely on the Russia-Ukraine war, while critics say it was partially the result of an imbalance in spending priorities that saw billions of dollars going into mega infrastructure projects and. They also blame a persistent effort by authorities to prop up the pound's value against the dollar, disregarding its realistic worth.
Meanwhile, a foreign currency crunch has hit local industries dependent on imported materials and caused shortages in consumer goods.
In a note released on Tuesday, Farouk Soussa of Goldman Sachs International said the pound remained overvalued after three devaluations, something he said was shown by the continuing existence of a parallel (black) market.
“In the absence of significant, near-term capital inflows [from the sale of assets to GCC countries, for example] and with only limited capacity at the Central Bank of Egypt to inject FX liquidity into the market, we think this implies further pound weakness and/or increases in local (interest) rates in the coming days,” he wrote.
Inflation will continue to rise until the end of February given the continuing slide of the Egyptian pound and a new and widely-anticipated round of fuel price raises, Naeem Brokerage Egypt said in a report on Tuesday.
“Food and non-alcoholic beverages were up 4.6 per cent month on month (adding to the 4.5 per cent in November), impacted mainly by bread and cereals, dairy, vegetables and meat,” said Allen Sandeep, research director of Naeem Brokerage Egypt.
This goes partially towards absorbing a 25 per cent devaluation in late October, but signals more inflation to come, Mr Sandeep said.
Egyptian President Abdel Fattah El Sisi has been trying to calm the nation’s 104 million people over the state of the economy, urging that they should not worry or be afraid.
He also urged them not to pay heed to rumours, and said Egyptians should only listen to him and his government.
“This crisis is not of our making. This [Russia-Ukraine] war is not ours, but Egypt is paying the price,” he said on Monday in televised comments.
The government also announced a package of austerity measures on Monday, chiefly designed to cut foreign currency spending and trimming non-essential expenses at government ministries.