Egypt: Inflation continues to rise in December; comes in at five-year high
Inflation accelerated to 21.3% in December, up from Novembers 18.8%, moving further above the upper bound of the Central Banks 5.0–9.0% target band—where it has been for the past 10 months. Decembers reading, which surprised markets on the upside, was the highest since December 2017. Looking at the details of the release, prices for transportation and for food and non-alcoholic beverages rose at a steeper pace in December; food inflation accelerated to over 37%.
Accordingly, the trend pointed up; average inflation rose to 13.9% in December (November: 12.6%). Similarly, core inflation soared to 24.5% in December, up from the previous months 21.5%.
Lastly, consumer prices increased 2.08% from the previous month in December, moderating from Novembers 2.28% increase.
The sharp acceleration in November and Decembers headline and core inflation readings was in no small part due to the Central Banks move on 27 Octobers to allow the Egyptian pound to steeply depreciate against the U.S. dollar. The move was aimed at securing the much-needed USD 3 billion deal with the IMF—which was approved in December.
In early 2023, the Egyptian pound has continued to dramatically slide against the greenback, dropping to a new all-time low of EGP 27.6 per USD on 9 January, partly due to the ongoing foreign currency crunch. The authorities are allowing the plunging of the pound, as shifting to a more flexible exchange rate was a key request from the IMF, but pressure to pause or even reverse this policy is likely to build.
Recent exchange rate developments will likely translate into steeper inflation in the months ahead, despite the Central Banks aggressive monetary policy stance; it is likely to continue to raise interest rates sharply at its next scheduled meeting on 2 February.
Our panelists see inflation averaging 15.2% in CY 2023, which is up 2.8 percentage points from last months forecast, and 8.5% in CY 2024.