The devaluation of the Egyptian pound was cited as the main factor in the rise of price pressures. Purchase cost inflation hit its highest level in four and a half years, leading to a sharp increase in selling charges since February 2017. The US dollar has risen over 100 percent against the pound since March, just after the war in Ukraine started.
Continuous inflationary pressures caused a significant and faster decline in new business inflows, leading companies to make further cuts in activity, purchasing and employment. Egypt's headline annual inflation accelerated to over 21 percent in December, the highest in almost five years, with January readings expected to be released this week.
"The latest PMI survey data showed purchasing costs increasing at the sharpest rate in four-and-a-half years, as the pound's depreciation drove a further rise in import fees," said David Owen, senior economist at S&P Global Market Intelligence.
"The surge in costs led to the largest rise in selling prices at non-oil firms since February 2017, suggesting that inflation could remain elevated throughout much of the year," he added.
January's data showed significant drops in both new orders and business activity. Companies also made further cuts in purchasing and employment as a result of input buying constraints and an ongoing shortage of US dollars. The shortage of US dollars is expected to remain a major problem in 2023 and add to Egypt's economic challenges.
Business forecasts for the next 12 months fell to their third-lowest on record as firms predict supply and price-related issues will further hamper demand. New order inflows in the private business sector declined at a marked pace, with companies widely reporting that rising prices have limited client budgets. Foreign sales also dropped to the greatest degree in four months, according to the report.
"Non-oil businesses gave a subdued assessment for output, as overall sentiment fell to the third-lowest level since April 2012," the report said. "Several respondents noted that high inflation was likely to hinder demand in the months ahead, although some hoped that market conditions will stabilise."
S&P maintained Egypt's foreign and local currency credit ratings at B level with a "stable outlook" in January for the second time in three months.
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