Egyptian urban inflation accelerated far faster than expected as a wave of currency devaluations made imports more expensive and sent food prices surging at a record pace.
(Bloomberg) —
Egyptian urban inflation accelerated far faster than expected as a wave of currency devaluations made imports more expensive and sent food prices surging at a record pace.
Consumer prices climbed an annual 31.9% in February, the fastest in over five years and up from 25.8% in the previous month, the state-run statistics agency CAPMAS said Thursday. Economists at Goldman Sachs Group Inc. and Naeem Holding predicted inflation at around 28%.
The upswing will likely give the central bank fresh impetus to raise interest rates this month, especially after food and beverage costs, the largest single component of the inflation basket, increased 61.8% from a year earlier.
Inflation is likely to accelerate further in the short term, spurred by a recent hike in fuel prices and increased demand during the holy month of Ramadan, which begins toward the end of March this year and is marked by family gatherings and large meals.
“Inflation has beaten our expectations for the second month,” said Mohamed Abu Basha, head of macroeconomic research at Egyptian investment bank EFG Hermes. “ Supply disruptions and speculative behavior are clearly playing a bigger role in pushing prices higher rather than a pure reflection of a weakening Egyptian pound.”
The surge in food prices is an especially difficult blow in the Middle East’s most populous country, where about half its 104 million people live near or below the poverty line.
Read: Gordon Ramsay’s Egypt Street-Food Pick Is Getting Hard to Afford
A major importer of wheat and other commodities, Egypt has devalued its currency three times over the past year, driving up the cost of most foreign-origin goods already under pressure from trade restrictions and the economic fallout of Russia’s invasion of Ukraine.
On a monthly basis, inflation accelerated to 6.5% from 4.7% in January, the sharpest increase since March 2007. The government has said tackling soaring consumer costs is a top priority.
Rate Outlook
Intensifying price pressures mean the central bank will likely resume tightening at its next scheduled meeting March 30.
The Monetary Policy Committee surprised by holding rates last month, saying it was assessing the impact of a combined 800 basis points of increases in 2022. It targets inflation of 7%, plus or minus 2 percentage points, by the fourth quarter of next year.
Read: Egypt’s Pound Weakens in Black Market on Devaluation Bets
The pound has lost almost half of its value since last March as Egypt struggles with its worst foreign-exchange shortage in years.
While the pound has traded only slightly weaker at local banks in the past week, it has depreciated more than 6% against the US dollar on the black market as traders bet on another devaluation.
–With assistance from Tarek El-Tablawy and Abdel Latif Wahba.
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