Egypt’s rate of inflation continued to rise in September as a reduction of subsidies and a weaker currency drove food prices higher.
The country’s consumer price index rose to 9.2 per cent last month from 7.9 per cent in August, Capmas, the main statistics bureau said yesterday. Meanwhile, the core inflation gauge, which excludes the price of fruits and vegetables from its calculations, fell to 5.55 per cent from 5.61 per cent in August.
“Food prices are going higher as subsidies are being slowly removed,” said Alp Eke, senior economist at National Bank of Abu Dhabi. “There was a huge spike in July 2014 when the first fuel subsidy was removed. Now they have a card for bread, so the bread subsidies are now being slowly removed. Before the government used to take the burden, now it’s being transferred to the people.”
Fuel subsidies, which were reduced in July last year, are making food prices more expensive because of higher transportation costs.
Inflation in Egypt is also being fanned by a rising money supply as the government prints cash to meet its local denominated debt obligations with its fiscal deficit widening.
Meanwhile, the cost of the US dollar is continuing to inch higher, while at the same time, the country’s foreign exchange reserves are dwindling as the central bank uses its dollars and other foreign currencies to support the pound, economists say.
The country’s forex reserves dropped for the third straight month in September, declining to $16.3 billion from $18.1bn in August.
The Egyptian pound has lost about 30 per cent of its value against the dollar since the popular uprising in 2011 that ousted the long-standing president Hosni Mubarak. While Arabian Gulf nations including the UAE have pumped more than $23bn of aid in the past two years that has not plugged the dollar shortage gap and companies still often have to go to the currency black market to help procure raw materials or much-needed machinery to keep factories going.
Devaluing the pound even further would make Egyptian assets more attractive to foreign investors, but concerns about excess price inflation have kept the central bank from pursuing a more aggressive approach, although analysts say the current policy is actually pushing prices higher.
EFG-Hermes, Egypt’s biggest investment bank, is forecasting that the local currency will weaken to 8 pounds against the dollar by the end of the year and 8.6 pounds by the end of next year. Officially, the pound trades at 7.83 pounds to the dollar while in the black market it has traded as high as 8.2 pounds in the past month, according to newswire reports.
mkassem@thenational.ae
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