CAPMAS attributed this acceleration mainly to the rise in prices of meat and poultry by 25 percent; grains and bread by 14.2 percent; fish and seafood by 11.5 percent; dairy products, honey, and eggs by 12.8 percent; oils, and fats by 14.1 percent; fruits by 7.3 percent; vegetables by 9.2 percent; and sugar and sweets by 6.9 percent.
It was also caused by the increase in prices of tea, coffee, and cocoa by 11.3 percent; tobacco by 8.5 percent; ready-made clothes by 4.4 percent; footwear by 3.2 percent; water and various housing services by 10.7 percent; furniture, furnishings, carpets, and other floor coverings by 8.6 percent; household appliances by 7.4 percent; and medical products, appliances, and equipment by 17.3 percent, according to the CAPMAS’s data.
Meanwhile, the country’s monthly inflation rate sped up in February to 11 percent, up from a rate of 1.7 percent recorded in January.
For almost two years, Egypt’s inflation has accelerated to the double-digit zone as a result of the high prices of commodities globally and the global supply chain disruption. This acceleration pushed the Central Bank of Egypt to tighten its monetary policy by raising the key interest rates to put brakes on the elevating inflation.
Since March 2022, the CBE has hiked key interest rates by a total of 19 percent (1900 bps), eight percent of which was applied in February and March of this year.
In an unscheduled meeting held this month, the CBE hiked key interest rates by an unprecedented six percent, letting the local currency rate be subject to market forces.
“The domestic economy has been recently weighed down by foreign exchange shortages resulting in the existence of a parallel exchange rate market and constraining economic growth,” the CBE noted following its special meeting held on 6 March.
“Coinciding with this, external spillovers emanating from global inflationary pressures have continued to accumulate as the world economy witnesses successive shocks. Such shocks elevated risk-off sentiment and inflation expectations, amplifying underlying inflation,” it added.
It also said it expects annual headline inflation to remain substantially above its target of seven percent (±2 percent) on average in the fourth quarter of 2024.
CBE Governor Hassan Abdalla expects the recent measures to curb the inflation rate. Moreover, Egypt has started to release stockpiled commodities in ports with a total of $12 billion, which is expected to contribute to bringing down the country’s inflation.
The IMF announced this month the expansion of the finance provided to Egypt under the Extended Fund Facility (EFF) program for Egypt from $3 billion to $8 billion with the long-awaited first and second reviews under the program to be completed over the coming weeks.
“The Egyptian economy faces significant macroeconomic challenges that have become more complex to manage with the recent conflict in Gaza and Israel. At the same time, the UAE’s recent investment deal has relieved the near-term pressures and provides a unique opportunity to address these challenges successfully,” according to the IMF.
Egypt has recently signed its biggest-ever FDI deal with the UAE, worth $35 billion, to develop the coastal zone of Ras El-Hekma.
Egypt’s programme with the IMF centres on four key points as following:
- A shift to a flexible exchange rate system will help Egypt’s domestic economy adjust more smoothly to external shocks and support the ability of Egyptian businesses to sell their goods and services abroad and encourage greater investment.
- Monetary and fiscal policy tightening, including through containing off-budget capital expenditure, are needed to reduce inflation and maintain debt sustainability.
- In recognition of the significant adverse impact high inflation has on purchasing power, targeted budget support to vulnerable households is warranted and budget space for such support needs to be protected.
- Better balancing the roles of the public and private sectors, with a focus on enhancing competition and allowing a greater role for the private sector in driving growth.
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