Egypt inflation soars to record 36.5% in July amid higher food and tobacco prices

The increase in the July headline rate exceeded analysts' estimates

An Egyptian man carries a rack full of bread in Abdeen district of Cairo. Food and beverage prices continue to drive up inflation in the country. EPA
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Egypt’s annual headline inflation increased to a record 36.5 per cent in July, from 35.7 the previous month, driven by higher food and tobacco prices, data from the country’s statistics agency Capmas showed on Thursday.

The latest headline reading in the Arab world's third largest economy was above the 36.1 estimates of Naeem Brokerage and Goldman Sachs.

On a monthly basis, the country’s inflation rate rose to 1.9 per cent in July versus 2.1 per cent in June.

Price increases were recorded in every item of the food and beverages basket, with fruit prices witnessing the highest increase of 12.5 per cent compared to June.

The lowest increase was recorded in meat and poultry whose prices rose by 0.8 per cent compared to June.

Overall, food and beverage prices rose by 68.2 per cent in July compared to the same month last year, according to Capmas.

Goldman Sachs expects inflation to remain elevated at these levels until the end of summer before starting to decline in the fourth quarter of the year.

A shortage in tobacco supplies also drove up prices by 8 per cent in July compared to the previous month.

Health care prices have also increased by 3.8 per cent in July compared to June and by 22.6 per cent since July of last year, mainly due to a rise in the price of medical equipment, according to Capmas.

Much of the machinery and equipment used by Egyptian healthcare providers is imported.

Transportation costs also rose by 0.8 per cent in July compared to the previous month. However, they rose by 16.5 per cent since July of last year.

In anticipation of an increase in Egypt’s headline inflation rate, the country’s central bank increased interest rates by 100 basis points last Thursday. The decision was taken to cool off the country’s inflation rate, according to the central bank.

The bank expects inflation to peak in the second half of this year, anticipating inflation to drop by 5-7 per cent by the end of 2024.

Egypt has devalued its currency three times since March 2022 and the pound has lost over half its value since then.

Additionally, a dollar crunch has hindered much of the country’s industries which rely heavily on imported components.

Before the latest headline reading, Goldman Sachs said it does not expect any further interest rate increases in the near term, given the government's resistance to greater foreign exchange flexibility.

The government has launched a number of different schemes to drum up more foreign currency with limited success.

A marked rise in global food and energy prices, brought on by the Russia-Ukraine war, led to several economic reforms being undertaken by the Egyptian government, such as requesting a loan from the International Monetary Fund (IMF), which was approved in December.

The programme has stalled, however, and the fund has not yet conducted its first review of Egypt’s economy following the funding approval.

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.

In May, 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+', five levels below investment grade, the ratings agency said.

Updated: August 10, 2023, 9:28 AM