Skyrocketing prices exhaust the budget of Egyptians

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The Egyptian pound has lost more than 68 per cent of its value since the end of March 2022 and there are four reasons behind the price increases. Ahmad Abdel-Rahman explains.

Despite the intensive moves taken by the Egyptian government, in cooperation with the Central Bank of Egypt (CBE), to contain the wave of price hikes, the recent increases have gone mad.

According to official data, inflation accelerated last November, rising to 2.3 percent on a monthly basis, and 18.7 per cent on an annual basis. The latter has exceeded estimates of 16.5 per cent. All commodities have seen price rises. The acceleration in inflation led to an annual inflation rate of 19.1 per cent, on an annual basis, last December.

A large number of analysts link the waves of price hikes in the Egyptian market to the violent losses incurred by the Egyptian pound against the dollar over the past year. The data indicates that the Egyptian pound declined 68.5 per cent against the US dollar. The official US currency exchange rate jumped from the level of EGP 15.74 at the end of the first quarter of 2022 to EGP 26.55 now.

Adjusting inflation targets

While the CBE raised interest rates by about 300 basis points in the final meetings held by the Monetary Policy Committee (MPC) last year, the Central Bank modified its inflation targets out of its commitment to achieving price stability in the medium term.

According to the statement of the MPC, the targeted inflation rates for the fourth quarter of 2024 during the coming period were set at the level of 7 per cent (2 percentage points above ) on average, and the level of 5 per cent (2 percentage points on average) during the fourth quarter of 2026.

The MPC is closely following global and domestic economic developments and says it will continue to use all its monetary tools to control inflation and contain inflationary pressures from the demand side and the secondary effects of supply shocks that may lead to inflation.

To reduce liquidity rates,the available cash in the Egyptian market, and to improve the attractiveness of the Egyptian pound, Egyptian banks announced the issuance of new investment certificates with an annual return of about 25 per cent. This was in conjunction with the new interest rate increases approved by the banks.

The absence of monitoring allowed the monopoly to return

Economist Imad Kamal believes that the accelerated waves of price hikes are the result of four things. The first is the significant decline in the value of the Egyptian pound against the dollar. Since the Egyptian market relies on imports for a large proportion of its total goods and products required in the local market, the prices of these commodities have doubled.

The second reason is related to the scarcity of hard currency and the buildup of goods and commodities in Egyptian ports. This is because importers cannot provide dollars or obtain documentary credits for the release of these goods.

The third reason is the rise in global commodity prices, in addition to the supply crises that global chains are witnessing. Egypt is one of the largest consumer markets in the world.

The fourth reason for increasing prices is the absence of control over the local market and the return of the monopoly especially regarding some basic commodities like rice, sugar, eggs, and cooking oil >)

Determining of price range for strategic commodities

During the last meeting of the Council of Ministers, Egyptian Prime Minister Mustafa Madbouly said that in light of the unprecedented circumstances that various countries of the whole world are going through, and Egypt is among them, there are some topics that are followed up periodically. On top of those is what is related to the availability of various goods and products in quantities and reasonable prices. 

Madbouly explained that some merchants are increasing their prices without abiding by the official prices set by the government. Increasing price necessitated the need to carry out daily follow-up through the various concerned authorities especially the consumer protection agency.

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Sunday, 26 March 2023