Why did Egypt's inflation start to rise again in May?

Muhammed Khalid , Monday 12 Jun 2023

Egypt's inflation started to rise again in May, with experts ascribing the increase to the dollar crisis and its impact on imports.

Egyptians buy fruits at a supermarket in Cairo, Egypt, Sunday, Feb. 26, 2023. AFP


"The monthly increase in both headline and urban inflation rates are marginal and not concerning given the current local and global economic conditions," said banking expert Mohamed El-Beih.

Monthly core inflation registered 2.9 percent in May 2023, compared to 1.6 percent in the same month of the previous year and 1.7 percent in April 2023.

Monthly headline urban inflation recorded 2.7 percent in May 2023, compared to 1.1 percent in the same month of the previous year and 1.7 percent in April 2023, according to data released by the Central Bank of Egypt (CBE) on Sunday.

Meanwhile, Egypt's annual core inflation reached 40.3 percent in May 2023, higher than 38.6 percent in April and its highest level since 2011.

Urban headline inflation measures the rate of price increase of goods and services typically consumed by urban households, while core inflation excludes volatile items such as food and energy prices.

Devaluation’s effect stands

"The increase in the exchange rate of the US dollar is among the key reasons behind the rise in inflation," Amr El-Alfy, head of research at Prime Securities, told Ahram Online.

Since March 2022, the Egyptian pound has lost over 75 percent of its value, now trading at around EGP 31 against the dollar.

Since the eruption of the Russian-Ukrainian war in February 2022, Egypt's inflation has been steadily increasing. The average core inflation for 2022 stood at 14.89 percent, according to CBE's data.

Egypt’s annual headline inflation bounced up again to hit 33.7 percent in May in comparison to 15.3 percent in May 2022, announced the Central Agency for Public Mobilisation and Statistics (CAPMAS).

Headline inflation includes all items in the Consumer Price Index (CPI) basket, including food and energy prices.

Imports shortage to blame

"Zooming in on the details of May's inflation, we will find a surge in prices of fish and seafood, oils and home appliances. That surge is attributed to the shrinkage in imports, as most of the components of these items are imported," El-Beih explained.

Imports declined by 34.7 percent to $5.54 billion in February, down from $8.48 billion in the corresponding month the year before. Egypt's non-oil merchandise imports shrank 17.3 percent year-on-year (YoY) to around $30.2 billion between July and December 2022.

"Another attention-grapping example is sugar, whose price soared 12.1 percent, which can be ascribed to the end of the harvest season of sugar beet in March and the start of processing and storing," the expert elaborated.

According to CAPMAS, the prices of fish and seafood jumped 9.8 percent in May, compared to the previous month. Prices of oils increased by 5.9 percent in May and home appliances soared by 6.3 percent.


"The expected increase in the electricity tariffs during the second half of 2023 will push inflation higher," El-Alfy stated.

He added that the average inflation for the year will amount to around 30 percent.

The Egyptian cabinet decided in October 2022 to postpone the increase in electricity tariffs to 1 July 2023.

The CBE's data shows that the average core inflation for the first five months of 2023 amounted to 37.98 percent.

On the other hand, banking expert Mohamed El-Beih stated: "Unless another devaluation occurs, inflation rates are expected to ease for the rest of 2023 and may reach pre-2022 levels during the second half of 2024."

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