Egypt: Inflationary pressures start to recede as inflation reaches three-decade high in March
April 11, 2017
In March, urban consumer prices rose 2.0% from the previous month. Although this still represents a noteworthy jump in prices, the fifth since the Central Bank abandoned the Egyptian pound’s peg to the U.S. dollar in early November, March’s reading was below the 2.6% increase observed in February and marked the lowest result in five months. This suggests that the aftershocks from the decision are starting to fade. In fact, core consumer prices—which exclude some of the hardest-hit commodities such as several food products and regulated utilities—dipped in March from the previous month, which is the first time that this has happened in nearly two years.
Urban inflation came in at 30.9% in March. The reading was only slightly above the 30.2% figure seen in February but still marked the highest inflation level since June 1986. Inflationary pressures receded in March as price rises slowed and a lower customs U.S. dollar to Egyptian pound rate stabilized the cost of imports.
Inflation has accelerated on the back of the flotation of the pound, the scrapping of several subsidies on regulated goods and the introduction of a new Value-added Tax. A weakened currency has eroded Egyptians’ purchasing power and has prompted prices of imported goods to spike, while the removal of subsidies has caused supply shortages and widespread discontent. On the flipside, tough economic reforms have restored investor confidence in Egypt, with U.S. dollars pouring steadily into the country and international reserves rising to a multi-year high.
Annual average inflation rose from 17.1% in January to 19.0% in February, reaching the highest figure in decades.
Author: David Ampudia, Economist