Amid the ongoing repercussions of Covid-19, rising oil prices, and the global inflation wave, Egypt’s inflation rate is expected to rise during 2022 to hit the inflation target set by the Central Bank of Egypt (CBE) of seven per cent (± two per cent).
Monthly headline inflation declined to 5.4 per cent in December 2021, the lowest recorded since July. The December reading was down 0.2 per cent from 5.6 per cent in November and 6.3 per cent in October, according to the Central Agency for Public Mobilisation and Statistics (CAPMAS).
The decline in the monthly inflation rate was mainly due to a decrease in food and beverage prices by 1.2 per cent, while the prices of other commodities went up by between 0.6 per cent and 1.4 per cent during December, according to CAPMAS.
But while food and beverages prices declined on a monthly basis, they were significantly higher than the year before, pushing the annual inflation rate to 6.5 per cent in December compared to six per cent the year before.
The prices of healthcare services rose in December by 3.2 per cent, education services by 13.9 per cent, and entertainment and agriculture services by 11.7 per cent, compared to December 2020, according to CAPMAS.
But Egypt’s inflation rate remains below the CBE target of seven per cent (± two per cent), and the government has thus far managed to contain inflationary pressures, according to the Global Economic Prospects report issued by the World Bank this month.
The World Bank report also had other good things to say about Egypt’s economy.
While it decreased its forecast for global real GDP growth in 2022 to 4.1 per cent and 3.2 per cent in 2023, down from 5.5 per cent recorded in 2021, it upgraded its outlook for Egypt’s real GDP growth to 5.5 per cent in the 2021-2022 fiscal year, which ends in June, up from five per cent earlier.
It expects similar GDP growth in the following year as well. The government, meanwhile, targets 5.7 per cent GDP growth in the 2022-23 fiscal year and six per cent in 2024-25, Minister of Finance Mohamed Maait said earlier this month.
“The Arab Republic of Egypt’s economy grew at a faster rate than expected into fiscal year 2020-21, benefiting from robust consumption demand, growing remittances, and contained inflation relative to recent history,” the World Bank report explained.
Remittances, one of the country’s main sources of hard currency, reached around $28 billion in the 2019-20 fiscal year.
It also noted that the country’s improved external demand from major trading partners, expansion in the information and communications technology and gas-extraction sectors, and gradual improvements in tourism would also drive its recovery.
Ahmed Moati, CEO of Kuwaiti VI Markets Egypt, a firm specialising in tracking global capital markets including in Egypt, told Al-Ahram Weekly that while inflation is expected to rise, it will do so at a slow pace, increasing by between one per cent and three per cent maximum during 2022.
Moati attributed the projection to Egypt’s ability to contain inflation thanks to projects being implemented particularly in the industrial, agricultural, information and communication technology (ICT) sectors.
He said the government’s strategy to expand agricultural production had helped to secure food stuffs for local demand, especially amid ongoing supply chain disruptions. This had met the food needs of the country’s growing population and prevented shortages, which typically push up prices.
Moati expects inflation to slow down in 2023 driven by widescale vaccination against Covid-19 and the economic recovery on the global and local levels.
Prime Holding senior economist Mona Bedair expects Egypt’s inflation to hit eight per cent in 2022, fuelled by increases in foodstuff prices globally, especially of wheat, grain, sugar, and food oil.
The increases are being driven by climate-change related issues that affect agricultural productivity in a number of markets, including Brazil and Russia, as well as by expected increases in global oil prices amid rising demand, Bedair said.
She expects the government to restructure the country’s subsidies system and increase prices, including on petrol, to accommodate the rises in global prices. Supply chain disruptions also weigh on Egypt’s inflation, but these are expected to soften in the second half of 2022.
On a global level, Moati said the US Federal Reserve (FED) was expected to initiate its tapering policy at its scheduled 28 January meeting. In its final meeting for 2021, the FED maintained interest rates, announcing that it plans to raise them in 2022 to cope with rising global inflation and increases in US unemployment.
The global credit-rating agency Moody’s said on Monday that strong consumer spending, a steadily tightening labour market, high inflation, and the surge of the Omicron variant imply that current US monetary policy is highly accommodative, given that inflation reached seven per cent in December 2021, and interest rates are deeply negative, all indicating an earlier and faster monetary policy normalisation.
The “FED is well placed to move to a neutral monetary stance starting in March 2022, and we now expect three US interest rate hikes this year, compared with our November expectation of none until 2023,” Moody’s said.
The FED meeting, a few days before the CBE’s Monetary Policy Committee (MPC) meeting in Cairo, will likely affect interest rates in Egypt. Any rate increases by the FED might prompt the CBE to increase rates as well as to maintain the interest of foreign investors in Egyptian treasury bills and prevent a possible flight of portfolio investments.
The MPC meeting, scheduled for 3 February, will review the CBE’s key interest rates after the MPC maintained them over the eight meetings it held in 2021.
The overnight deposit rate, overnight lending rate, and the rate of main operations were kept unchanged at 8.25 per cent, 9.25 per cent and 8.75 per cent, respectively. The discount rate was left unchanged at 8.75 per cent.
*A version of this article appears in print in the 20 January, 2022 edition of Al-Ahram Weekly.
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