Despite the rise in Egypt’s interest rate and the local currency slight appreciation, the country’s Inflation unprecedentedly hiked last month, reaching its highest level in more than three decades.
According to the state-run Central Agency for Public Mobilization and Statistics (CAPMAS), the country’s annual inflation rate reached 34.2 per cent in July up from 30.9 per cent in June.
Economists believe that the high inflation rates constantly erode the purchasing power for the citizens, especially with the lack of foreign currency availability in the market.
Local banks have stressed that the inflation hike was not expected, especially after last month’s four per cent rise in the central bank’s interest rates and the one per cent appreciation in the local currency against the US Dollar.
The International Monetary Fund (IMF) has repeatedly called for the need to fight inflation in Egypt following their agreement with the Egyptian government over a three-year $12 billion loan to endorse the country’s fiscal reform programme. In mid-January, the government announced its endeavour to curb the economic inflation, which they said to have posed threat to the country’s macroeconomic stability.
A prominent finance and investment professor at Egypt’s Cairo University, Hisham Ibrahim, recently said that the increase in fuel and electricity prices have negatively affected the economy even after the government recent monetary policies that have been put in place.
In late June, the Egyptian government decided to raise the prices of petroleum products by 55 per cent cent in a second augmentation in only eight months. Electricity prices were also increased in July by 42.1 percent.
The Egyptian authorities do not have neither financial nor the monetary tools to deal with the high inflation, Ibrahim has added, stressing that the government have to control the goods and services markets.
In July, the US Dollar’s exchange rate against the Egyptian pound declined from EGP 18 to EGP 17.82, according to Anadolu Agency.
“The only way to fight the inflation in the medium and long runs is to boost the country’s overall production and work on attracting foreign direct investments,” the Egyptian expert has noted.
In six July, the Egyptian central bank raised the interest rates by 4 per cent, reaching 18.75 and 19.75 per cent in about 45 days. The move aimed at mitigating the side effects of the recent increase of fuel and electricity prices.
Prime Holding, prominent Egyptian investment company, recently announced that the country’s inflation would not get below 20 per cent before 2018; however, the company claimed that it would decline to 21 per cent during the current fiscal year.
Egypt’s financial starts early July and lasts until end of June of the following year.
“If the government started controlling the market prices, interest rates would sharply fall in the second quarter of the current financial year,” the Egyptian company has predicted.
On the other hand, the UAE-owed Arqaam Capital has said that the inflation would reach 31 to 32 per cent on average in the next two months, driven by high fuel, electricity and water prices, in addition to the as well as new mobile services’ tariff.
The London-based Capital Economics has also reported that inflation in Egypt rose in July to its highest level since 1986. The company, which was more pessimistic than the previous two financial institutions, has predicted that the inflation would not decline before at least nine months.
The British company has noted that the inflation, which jumped from 10 per cent in early 2016, has prompted the central bank to impose some monetary policies.
“The Egyptian central bank is expected to cut the interest rates on deposits by 100 basis points (1 per cent) at the next year’s monetary policy state committee meetings,” the company added.
Despite the government’s efforts to ease the pain of its economic reforms through different measures, such as increasing the subsidies on ration cards, Egyptians are still complaining about the rising prices that are devouring their income and that do not help them meet their basic needs.
Egyptians, who are among the millions living below the poverty line, complain that they may not be able to afford food after the consecutive jumps in fuel, medicine and transportation prices, especially the metro used by millions of Egyptian citizens.