Reversing the hikes

Safeya Mounir and Amira Hisham , Tuesday 14 Nov 2023

Egypt’s inflation rate bucked its five-month upward trend in October, report Safeya Mounir and Amira Hisham

Inflation rates eased down for the first time in six months in October
Inflation rates eased down for the first time in six months in October


Egypt’s annual inflation rate stood at 35.8 per cent in October, down from 38 per cent in September, its lowest level since June, reported the Central Agency for Public Mobilisation and Statistics (CAPMAS) on Saturday.

The core inflation rate, which excludes commodities with volatile prices, recorded a monthly rate of 1.8 per cent in October, down from three per cent in October 2022 and 1.1 per cent in September 2023, according to the Central Bank of Egypt (CBE).

EFG Hermes, a leading local investment bank, had expected inflation to go down in October but to 37 per cent, said Mohamed Abu Basha, the group’s chief economic analyst and vice-president of its research sector.

He attributed the decline to the absence of increases in the education index in the basket of services and commodities used to calculate the inflation rate. The government put a ceiling on rises in school fees this year for both public and private schools. Education costs typically see an uptick in October with the commencement of the academic year.

Food and beverages have the highest weighting in the general consumer price index, followed by housing, water, gas, and fuel. Healthcare comes next, then transport and communication, education, restaurants, and hotels.

Food and beverages inflation eased from an all-time high of 73.6 per cent year-on-year in September to 71.3 per cent last month. This came on the back of some important declines in fruit and vegetables inflation.

Abu Basha cited the relative stability in the parallel-market dollar exchange rate and a rise in prices during the base year, corresponding to the same period last year (October 2022), as other reasons for the decline in the inflation rate.

Egypt is heavily reliant on imports and faces challenges due to the surge in the prices of goods and services resulting from the dollar’s appreciation against the pound and difficulties in sourcing the currency.

The pound has lost almost 65 per cent of its value versus the dollar since the war in Ukraine started in February 2022. Egypt is grappling with two delayed reviews by the International Monetary Fund (IMF) and credit-rating institutions downgrading its credit scores, signalling an increase in financing risks.

Mohamed Hassan, managing director of Alpha Financial Investment Management, believes that the decline in the annual inflation rate, comparing the rate in October 2023 to that in October 2022, is due to the latter being particularly elevated.

He said that the government initiative to lower the prices of a set of commodities by 10-15 per cent coupled with campaigns to boycott goods imported from countries or manufactured by companies supporting the war on Gaza has resulted in a relative decline in prices.

A Reuters poll conducted prior to the announcement of the inflation index anticipated a marginal decrease due to the decision to reduce retail prices for certain essential food items over a six-month period starting in mid-October 2023. These items have also been exempted from customs duties.

On 10 October, the government announced an agreement with private-sector producers and retailers to decrease the prices of beans, lentils, dairy products, pastries, rice, sugar, chicken, and eggs by 15 to 25 per cent for a period of six months.

Inflation has been rising since June, reaching a peak of 38 per cent in September, its highest since the previous record set in July 2017 at 32.95 per cent.

Heba Al-Leithi, a statistics professor at Cairo University and CAPMAS advisor, said that the decline in the index does not imply that prices have not increased, but rather reflects a decrease in the rate of their growth.

She attributes this to seasonal fluctuations in vegetable and fruit prices, which impact the index, along with the effects of the government’s campaign to decrease food prices.

In early November, the CBE decided to maintain its basic interest rates, marking the second consecutive time it has done so and the fifth time this year. The overnight deposit and lending rates were held steady at 19.25 per cent and 20.25 per cent, respectively.

The CBE said in a statement that the decision to keep rates on hold comes as it is continuing to assess the cumulative impact of previously enacted tightening policies on inflation rates.

The government campaign launched in October was initiated in a collaborative effort between the cabinet, represented by the ministries of supply, internal trade, commerce, industry, and finance, along with the CBE, the Federation of Chambers of Commerce, and the Federation of Industries in all the governorates.

According to a presidential spokesman, President Abdel-Fattah Al-Sisi is following up on the campaign on a daily basis, even amid the Gaza events.

Al-Leithi believes campaigns of this sort may not effectively address high prices, however. More important to take down prices are increasing production and reducing the transportation links from producers to consumers, she said.

A month into the campaign, rice prices have dropped to LE28 per kg. The prices of eggs and frozen poultry have experienced a decline, albeit only at government outlets which sell at subsidised prices. The price of live poultry has not gone down, however.

The General Union of Poultry Producers has announced fixed prices for its products on its Facebook page. These included LE115 for a box of 30 eggs, LE100 for a kg of frozen chicken, and LE65 for broiler chickens. However, these prices were only implemented in outlets affiliated with the Ministry of Supply.

Silo Foods Factories, part of the military-affiliated National Service Projects Agency, has reduced the prices of its products. The price of Silo pasta has gone down to LE17 per kg, while its counterparts are sold for LE23. The company’s milk is priced at LE32 per kg, compared to similar types at LE37.

Abu Basha anticipates a continued decline in the inflation rate in the coming months, attributing this to the initiative launched in October to reduce commodity prices. This also comes despite the recent increase in fuel prices, as according to Abu Basha diesel prices have not seen a corresponding increase.

Higher diesel prices increase food prices due to higher transportation costs, he explained.

“The annual index is expected to go down to between 33 and 34 per cent in November,” he added.

Hassan sees things differently, however. While the prices of vegetables and fruit might not be directly impacted by the rise in petroleum prices, they could be influenced by the shortage of gas supplies to fertiliser factories, he noted.

The shortage in gas imports might affect production, leading to an increase in fertiliser prices. If the fertiliser sector remains unaffected, the decline in the consumer price index is expected to persist over the coming month, he concluded.

* A version of this article appears in print in the 16 November, 2023 edition of Al-Ahram Weekly

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