Congressional Products | February 16th, 2023
Q: Is inflation in Egypt growing?
A: This month, a report from the Central Agency for Public Mobilisation and Statistics cited that Egypt’s December 2022 inflation rates marked the highest in five years after climbing dramatically since last spring. The annual urban consumer inflation rate grew to 21.3% in December, exceeding economist predictions.
The inflation has not yet hit its peak, as the annual consumer price index (CPI) is projected to reach 25% by February of 2023.
Q: What is causing the inflation?
A: The Russian invasion of Ukraine was a major catalyst for the economic crisis. Egypt relies on Russia and Ukraine for 80% of its wheat imports, and the restriction of the global grain market caused wheat import prices to double. The corresponding energy crisis, additionally, hit the Egyptian economy hard. Egypt imports approximately 100 million barrels of crude oil annually, and the spike in prices has increased production and manufacturing costs across the board.
The prolonged economic spiral also led to a shortage of foreign currency, with net international reserves plunging 19% during the summer of 2022. The dollar shortage, exacerbated by the depreciation of the Egyptian pound, has created a backlog of imports worth $9.5 billion dollars, further decreasing market supply and contributing to rising prices.
Q: How does the value of the Egyptian pound affect inflation?
A: Steady devaluation of the Egyptian pound has compounded the increase in inflation rates. In March of 2022, the Central Bank of Egypt (CBE) devalued the Egyptian pound by 14% after foreign investors pulled 20 billion USD out of Egypt because of the war in Ukraine. Since then, the pound has lost half of its value relative to the US dollar. When currency depreciates, imports from countries with stronger currencies must be sold at higher prices in order to return a profit, leading to price increases.
Q: What sector of the Egyptian economy has been impacted the most?
A: The food and beverage sector has been the most heavily impacted, with prices skyrocketing to 37.9% from December 2021 to December 2022. However, the inflation is widespread, also affecting the costs of medical services, furniture and housing.
Q: What is the direct impact of inflation on Egyptians?
A: The economic crisis has hit civilians hard. 30% of Egyptians already live under the poverty line, and consumers are increasingly unable to buy food and other necessities. Many have had to cut down significantly on meat, fruits and dairy, and foods that were once considered staples are now luxuries.
The cost of living has surged, many Egyptians face depleted savings, and import restrictions have caused layoffs.
Q: How has the government responded to the crisis?
A: The Egyptian government has tried multiple solutions to mitigate the crisis, but has found little relief. Efforts include curbing state spending and putting costly projects on hold. The Central Bank raised interest rates four times over the course of 2022 to combat inflation.
The government has also been seeking assistance from the international community and, in October, reached a preliminary deal with the IMF for a loan of $3 billion. However, this deal may cause the situation to worsen before it gets better; as part of the agreement, Egypt committed to establishing a relatively flexible exchange rate, immediately causing the Egyptian pound to further depreciate.
On January 16, 2023, the government announced that it would start selling discounted bread to low-income Egyptians hit hardest by the crisis.
Q: How does Egypt’s inflation impact the rest of the MENA region?
A: Several of Egypt’s neighbors are concerned by the economic collapse. Other countries in the MENA region, such as Saudi Arabia, Qatar, and the UAE, have pledged billions in foreign aid in order to bolster Egypt’s foreign monetary reserves.
Rising Inflation in Egypt: Impacts & Responses