Price war in Egypt: Reining in inflation

Gamal Essam El-Din , Ahmed Kotb , Friday 18 Mar 2022

Retail controls, market monitoring, and a ban on the export of strategic commodities are some of the measures being taken to reign in inflation.

Reuters: File
In Egypt bread is such a ubiquitous staple that in Egyptian Arabic it is called living . It cannot be made without wheat vast amounts of it, imported mostly from Russia and Ukraine. The current crisis has therefore raised critical concerns at the heart of Egyptian food security, but measures are underway to avert any negative impact (photo: Reuters)

Three weeks after the Russia-Ukraine war began Egyptians are facing spiralling prices across the board. Vegetables, unsubsidised bread, eggs, poultry, and cooking oil are just some of the items for which people must now pay more.

“I don’t get it. The commodities we are buying now must surely come from stocks that traders had before the war started. Selling them for such high prices is blatant profiteering,” complained Noha Abdel-Razek, a housewife from Nasr City, on Monday.

“The government says we have enough wheat to cover our needs until the end of the year, yet this morning I paid LE1.5 for each loaf of bread compared to LE1 10 days ago,” she added.   

Abdel-Razek’s complaints are shared by many. But what lies behind the sudden price increases? According to Prime Minister Mustafa Madbouli, part of the responsibility falls squarely on the shoulders of “greedy traders” who are exploiting the war in Ukraine to raise prices of basic goods to “unjustified levels”.

But though some goods are undoubtedly drawn from pre-war inventories, the fact is the conflict has forced international commodity prices higher, and, as a major importer of food staples, Egypt is paying a price which will inevitably be passed on to household budgets. In the meantime, however, increasing numbers of commentators are calling on the government to monitor prices and act against those seeking to raise them beyond an acceptable range.

“Imported inflation and its causes are outside the scope of domestic policies, but the government can attempt to mitigate the effects by tightening control over markets to prevent traders from exploiting the situation,” says Esraa Ahmed, an analyst with local investment bank Al-Ahly Pharos.

On Tuesday, President Abdel-Fattah Al-Sisi said the price of unsubsidised bread should no longer be left to the free market. He ordered a price cap on unsubsidised loaves, to be policed by officials.

President Al-Sisi also ordered that strategic reserves of basic commodities be increased to cover a minimum of six months.

On 10 and 12 March, Minister of Trade and Industry Nevine Gamea issued two decisions effectively halting the export of eight basic commodities — wheat, flour, oils, corn, lentils, pasta, beans, and flour — to ensure that local demand is met.

The government is also considering an increase in the price it pays to local farmers for wheat.

“The move will encourage farmers to deliver more wheat,” says Cabinet Spokesperson Nader Saad. He noted that domestic wheat prices already increased in November from LE720 to LE820 per ardeb. (One ardeb is equal to 150 kg.)

Farmers who deliver sufficient quantities of wheat per feddan should also receive subsidies on the cost of fertilisers, said Saad.

The war-fed hike in prices comes hot on the heels of Egypt’s highest inflation rate in 31 months, with the annual urban inflation index reaching 8.8 per cent in February.

Almost all food items saw accelerated price increases compared to January, and while some can be accounted for by seasonal factors, other prices have been pushed upwards by the global inflation caused by the conflict between Russia and Ukraine, noted a research paper by Al-Ahly Pharos.

The war in Ukraine broke out just as global inflation was surging due to lingering supply problems, explained the note. More importantly, it added, there is no sign that inflation figures will level-off this year, with further inflation fuelled by the higher demand for foodstuffs that traditionally accompanies Ramadan.

Saad announced that the Crisis Management Committee — formed to deal with the fallout of the war in Ukraine — introduced measures to contain the rise in prices at the end of last week.

“Prices of many major goods have now stabilised, and following the implementation of new measures prices may go back down,” he said.

The government, in coordination with chambers of commerce and major retail chains, on 15 March began organising food exhibitions across Egypt’s governorates. The aim is to double the supply of basic goods reaching the market and reassure citizens that they are not about to face food shortages.

In the run-up to the holy month there are also Ahlan Ramadan exhibitions at which food items are offered at discounted prices.

In the meantime, the Ministry of Interior has been tasked with taking legal action against traders who hoard goods, including bakeries which stockpile flour. According to the 12 March edition of Al-Ahram, 105 traders accused of unfairly hiking prices and hoarding goods have been referred for prosecution.

Chambers of commerce, most notably the Cairo Chamber, have also begun announcing daily guideline prices for basic goods.

“Traders should abide by these prices, within specified margins. When traders are found to be selling outside the margins, the chambers will move quickly to investigate and take action,” said Saad.

MP Ehab Ramzi, a member of the House of Representatives’ Legislative Committee, complains that the interventions are too little, too late, and that “most governors have left the public prey to a mafia of greedy traders.”

Ramzi also voiced the growing worry among citizens that the war in Ukraine will lead to an increase in fuel prices.

“People want to know how the government will deal with the dramatic rise in world oil prices which have reached $140 per barrel. There is widespread fear that the response will be to raise fuel prices next month, adding to the inflationary pressures,” said Ramzi.

Fakhri Al-Fiqi, head of the House’s Budget Committee, says that while the government possesses the means to control the local food market, it can do nothing to check increases in the cost of fuel.

“Oil-related decisions are made by the independent Fuel Pricing Committee which meets every three months,” said Al-Fiqi. “Yet increases in the global price of oil filter through in less than a fortnight.”

The Fuel Pricing Committee has already increased oil prices four times in less than a year.

Some commentators expect the government to use monetary policy in an attempt to cap inflation. With inflation rates within the targeted range of seven per cent plus or minus two, the Central Bank of Egypt has not raised interest rates since early last year.

But would an increase now limit inflation?

Economist Hani Tawfik doubts it. The current inflationary wave, he explains, is fuelled by increased international commodity prices and supply shortages and raising interest rates, which are already among the highest in the world, in the hope of limiting demand might instead lead to stagflation.

*A version of this article appears in print in the 17 March, 2022 edition of Al-Ahram Weekly.

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