Catching up with inflation

Mirna Fahmy , Tuesday 20 Jun 2023

Are increases in salaries enough to make up for the recent jumps in inflation, asks Mirna Fahmy

Inflation rose to 32.7 per cent in May
Inflation rose to 32.7 per cent in May


Egypt’s core inflation, which measures changes in the prices of goods and services after excluding volatile items like food and energy, came in at 40.3 per cent in May compared to 38.6 in April, according to the Central Bank of Egypt (CBE).

The release of the figures came one day after the Central Agency for Public Mobilisation and Statistics (CAPMAS) announced that annual urban inflation had resumed its upward trend after a month of decline to reach 32.7 per cent in May compared to 30 per cent in April.

The reading is close to the 33 per cent recorded in July 2017, the highest in six years.

May’s hike in inflation had been expected as the government had introduced increases in subsidised foods for ration cardholders in addition to an increase in diesel prices during the month.

The inflation rate has been spiking since the economic downturn resulting from the war in Ukraine pushed the government to make a series of devaluations to the value of the pound and led to a dollar crunch that made it hard for importers to pay their bills leading to a shortage in commodities.

The decline in the value of the pound since its floatation in 2016 has made making ends meet more difficult for many. The pound is trading in the official market at almost LE31 to the dollar compared to LE8 seven years ago just before the floatation and LE19 in October 2022.

What is exacerbating the problem is the fact that salaries and wages for employees both in the private and public sectors have not increased at a pace matching the hike in inflation.

Maha, a 53-year-old mother of two, started working as a mathematics teacher following the 2016 floatation of the pound to help her family with rising living expenses. Safiya (not her real name) had to join the work force when her only daughter joined kindergarten three years ago. Thousands of women have done the same thing over the past few years, as a result of the devaluation of the pound and prices jumping to unprecedented highs.

In response, the government has given its five million employees, those working in state-owned companies and public authorities, a seven to 10 per cent annual raise. It has also increased the minimum wage for these employees several times since 2016, pushing it up to reach LE3,500 a month compared to LE1,200 in 2015.

The annual raise is not obligatory for the private sector, which employs 25 million employees. Last year, the Higher Council for Salaries succeeded in convincing private-sector employers to increase the minimum wage of their employees from LE2,400, the first ever legal minimum wage set for the private sector in July 2021, to LE2,700 in January.

However, around 50 per cent companies have evaded the increase. Private companies working in 20 economic sectors have been exempted from paying the minimum wage at the request of the Federation of Egyptian Industries.  

“We used to be able to afford to buy meat and chicken every week, but now we buy them every three weeks or every month,” a teacher at a state school told Al-Ahram Weekly. Another teacher who works for a private school said that she buys vegetables and fruit by the piece and not in kg as she used to.

Food and beverage prices, the largest component of the basket of goods and services used to calculate inflation, accelerated by 60 per cent in May compared to 54.7 per cent in April.

The private mathematics teacher said that she used to buy vegetables in bulk and freeze them for when they are out of season. She also used to buy enough butter to meet her needs for the whole year, but now she only buys small quantities.

Other than a 10 per cent annual increase, the private school that the teacher works for does not offer bonuses to help with the increase in living expenses. She is also worried that the increase will put her in a higher income tax bracket.

“Companies that pay salaries in Egyptian pounds are struggling to keep up with inflation, unlike those that give their employees the equivalent amount in dollars,” Hind Zakaria, the director of a recruitment agency, said.

Zakaria said that after any crisis, companies usually analyse their performance and decide whether they will expand, maintain the size of their activities, or downsize. Whenever there is an increase in inflation, some companies adjust their salary scales, but the salary increase in the light of current inflation rates should be 30 per cent, she said.

Not all companies have the financial abilities to make salary adjustments.

Michael, who opened his own small construction business in 2019 because the income from his government job was not enough, said that “my fixed salary barely covered coffee and fuel for my car. It was not enough for household expenses.”

He has employed a couple of engineers and several employees to help run his business. Though everything was encouraging at first, his company began suffering with the depreciation of the pound. His costs doubled, and his clients could not afford further price increases.

At the moment, Michael cannot afford to increase the salaries of his employees. He has had to use his savings to pay his children’s school expenses.

“People should widen their skills by creating portfolios to attract more freelance jobs to increase their income instead of relying only on one fixed source of income,” Zakaria commented.

The work from home experience during the Covid-19 pandemic has revealed the wide range of remote second jobs that people can apply for and gain extra income through them, she said.

* A version of this article appears in print in the 15 June, 2023 edition of Al-Ahram Weekly

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