Transport and Cairo metro fares have been raised over the past couple of weeks on the back of the government’s decision to increase fuel prices.

Further increases are expected when the pending hike in electricity prices takes place, and some companies will likely raise the prices of their products to cover the surge in production costs affecting consumer spending on food and other goods.

Salma Mohamed, a consumer sector analyst at Al-Ahly Pharos, said that contrary to expectations some food companies producing packaged snacks or baked goods might see a boost in sales due to their relatively inexpensive prices compared to other food options, however.

Many of these companies can adjust their pricing strategies by reducing the packaging size or quantity instead of raising prices, she said.

One such company is Edita Food Industries, the largest snack food producer in Egypt, which reported a net profit of LE436.4 million in the first quarter of this year, marking a 16.2 per cent annual increase. This was despite the high inflation rate and the scarcity of dollars during most of the first quarter until March.

The Ministry of Petroleum raised fuel prices last week, increasing the price of diesel from LE10 to LE11.5 per litre. Diesel is the main fuel for vehicles transporting goods from factories to wholesalers and retailers.

Prime Minister Mustafa Madbouli said that the prices of some services will increase in the coming period as the government continues to lift fuel subsidies until the end of next year. Analysts expect these measures will contribute to a rise in inflation, which has been relatively stable over the past two months.

Mohamed Abu Basha, chief economist at EFG Hermes Investment Bank, predicts inflation will range between 23 and 24 per cent by December, before dropping to 15 per cent in February 2025.

He noted that companies belonging to the food industries sector like Domty, Obour Land, and Juhayna are part of the “defensive sector”, which means that consumers may temporarily reduce their consumption of these companies’ products for a period before resuming their purchases due to their being used to buying them.

Juhayna recorded a 41 per cent increase in net profits, reaching LE479 million, in the first quarter of 2024. It said the growth was the result of volatile economic conditions and a shortage of foreign currency at the beginning of the year.

This had led consumers to opt for more affordable products, it said, adding that its diverse product prices had enabled it to benefit from market shifts.

Abu Basha said he expected such companies’ performance to remain stable and anticipated an increase in the sales of juices produced by Juhayna and Domty throughout the summer.

Mustafa Shafie, director of the Research Department at the Alarabia Securities Brokerage, said that the increase in diesel prices will lead to a rise in product prices as companies pass on additional costs to consumers.

He expects sales to decline and consumers to be attracted to products at lower prices even if they are of lower quality.

In the durable goods and furniture market, Oriental Weavers, Egypt’s largest carpet producer and exporter, experienced improved sales due to the decline in the dollar exchange rate from LE60 to LE65 in the parallel market before devaluation to around LE49 in the official market currently.

However, it cautioned that global transportation challenges could impact its export revenues.

Shafie said that Oriental Weavers’ products are able to compete with Turkish and Chinese products, particularly due to their relatively low-priced exports. However, he said that any rise in the price of propylene, a petroleum derivative used in rug production, could cause the company’s production costs to increase.

In the first quarter of 2024, Oriental Weavers saw a 38.2 per cent increase in net profits, reaching LE557.58 million, up from LE403.52 million in the same period in 2023. The company’s total sales for the first quarter amounted to approximately LE5.03 billion, reflecting a growth rate of 21.6 per cent.

Car market professionals expect a decline in the number of vehicles sold in the near future due to supply shortages and rising prices exacerbated by limited imports of fully manufactured vehicles.

Abdel-Qader Talaat, general manager at MTI, a car importer, said demand for vehicles had declined with the surge in prices since the exchange rate was liberalised in March. The customs value of some imported cars rose by more than 60 per cent following the currency liberalisation.

Second-hand car prices have also increased, and Talaat said he expected lower sales starting in the second quarter of the year.

Several market experts suggest that the recent hike in fuel prices has led car owners to look for alternatives to mitigate the impact of consecutive fuel-price increases, such as switching to natural gas, buying electric vehicles, or owning more fuel-efficient cars.

There have been reports that demand for converting cars to natural gas has increased by 20 to 25 per cent since the beginning of the year due to the stability of natural gas prices.

Hassan Mabrouk, head of the Electrical Appliances Division at the Federation of Egyptian Industries, noted that the electrical appliances market is seeing a relative recovery compared to the past two years, driven by a decline in prices due to the availability of the imported spare parts necessary for production and a steady supply of products.

However, he warned that the recent rise in fuel prices could lead to an increase in the cost of transporting goods to exhibitions and of production, potentially pushing prices higher.

While leading companies can absorb increased production costs without raising the prices of their final products, smaller companies may not be able to remain competitive, he added.

* A version of this article appears in print in the 15 August, 2024 edition of Al-Ahram Weekly