Egypt's inflation accelerates to nearly 33% in May as food and beverage prices soar

High consumer prices remain one of the biggest challenges for the economy and government

A bakery in Cairo. A 50 per cent depreciation in the value of the Egyptian pound against the dollar has sent consumer prices soaring. EPA

Egypt's annual headline annual inflation accelerated faster than anticipated in May, only a month after it cooled down, propelled by higher food and beverage prices.

Prices were up at 32.7 per cent, from 30.7 per cent in April, matching a peak in March.

Food and beverage costs, the single largest component of the inflation basket, soared about 60 per cent, the Capmas statistics agency said on Saturday.

Economists polled by Reuters expected inflation to hit 31.4 per cent last month. On a monthly basis, inflation rose to 2.7 per cent, from 1.7 per cent in April, the Egyptian authority said.

Egypt, the most populous Arab country and one of the world's largest wheat importers, has faced economic challenges since Russia invaded Ukraine in February 2022.

Following an economic slowdown brought by the Covid-19 pandemic, Egypt, a net food importer that relies heavily on grain and tourists from those two countries, has also been one of the nations most affected by the war between them.

Inflation remains one of the biggest challenges for the economy and consumers: Egypt’s annual urban inflation climbed to its highest level in six years in March, mostly because of increasing food prices linked to the decline in the value of the pound, Capmas said.

A 50 per cent depreciation in the value of the Egyptian pound against the dollar following repeated devaluations by the government in an attempt to qualify for a loan from the International Monetary Fund has also sent prices for basic foodstuffs soaring for Egyptians.

Cairo has said that fighting inflation is a priority. The central bank is targeting an inflation level of 7 per cent by the fourth quarter of next year.

Last month, Fitch Ratings revised Egypt's outlook to negative and gave the country its first downgrade since 2013, citing the lack of economic reforms and challenges to its fiscal system.

The country's long-term foreign currency issuer default rating was revised to 'B' from 'B+', which is five levels below investment grade, the New York-based ratings agency said.

Fitch expects the Egyptian economic growth to slow down to 4 per cent in fiscal year 2023, from 6.6 per cent in 2022, before recovering to 4.5 per cent next year. It said inflation, foreign currency shortages, fiscal policy tightening and heightened economic uncertainty will be the main drags.

The agency projects average inflation to hit 24 per cent in fiscal year 2023, then decrease to 18 per cent in the following year.

The latest annual inflation is narrowly below the all-time high of 32.95 per cent in July 2017, less than a year after Egypt devalued its currency by half as part of a $12 billion support package offered by the International Monetary Fund.