People walk in front of the Central Bank of Egypt's headquarters at downtown Cairo, Egypt (Reuters)
The Central Bank of Egypt announced on Monday that the country's core inflation soared to a record 30.86 percent in January from 25.86 percent the previous month, as consumers continue to be hit with prices upsets after the country's flotation of its currency and increase in fuel prices.
According to the CBE, the monthly rate increased by 5.0 percent in comparison to a 4.35 percent increase last December.
The inflation will lead to erosion in consumer's purchasing power, lowering consumption, said Omar El-Shenety, the managing director at Multiples Group. "The GDP growth will fall with high inflation thus deepening stagnation," he told Ahram Online.
Core inflation, which does not include volatile items such as fruit and vegetables, has been rising in recent months following a November decision by the CBE to float the pound and lift fuel subsidies.
Egypt's economy has been struggling since the 2011 revolution, with a sharp drop in tourism and foreign investment, two main sources of hard currency for the country.
On 3 November 2016, the CBE decided to freely float the pound and raise key interest rates as part of a set of reforms aimed at alleviating a dollar shortage and stabilising the country's flagging economy.
The Monday announcement came two days after Egypt's state statistics body CAPMAS said that the annual headline inflation rose to 29.6 percent in January from 24.3 percent in the previous month and from 10.7 percent in January 2016, hitting its highest level in at least a decade.
Finance minister Amr El-Garhy told Bloomberg TV in an interview on Monday that he expects the rising inflation to ease as of April when he was asked about its peak in the first quarter of 2016/2017.
According to El-Garhy, the high inflation was expected due to the devaluation of the local currency and the economic reforms, “but after [March], we believe [inflation] will start improving, because it is all resulting from high supply prices rather than being demand-driven inflation,” El-Garhy said.
El-Shenety said that the rising inflation over the past months came due to a "shock effect" sustained after several economic tryouts of reform that included procedures of lifting fuel subsidies, the spike of the USD against the Egyptian pound, and the introduction of the value added tax.
"The prices might remain rising in the coming months, but inflation rates should lessen to an extent," El-Shenety said.
The managing director elaborated that El-Garhy's statements on an ease in inflation in the upcoming months came due to the VAT already in force, the government continuing to carry out the lifting of the subsidies plan, and the price of the dollar falling against the Egyptian pound.
The average price of the dollar has recorded on Tuesday EGP 16.55 for buying and EGP 16.62 for selling, falling drastically from an average of EGP 18.5 a week ago, according to online date from the three major banks, the Commercial International Bank (CIB), the National Bank of Egypt (NBE), and Banque Misr.