Shop owner Hassan Mahmoud laid out his heaps of dried fruits and nuts at a multicolored Ramadan tent in the Egyptian capital to catch shoppers’ eyes for the fasting month, like he does every year. Only this time, he said, “people aren’t buying”.
“Things get more expensive every year but this time it’s even worse because the dollar is higher,” Mahmoud said as he stood on a street full of similar stands bedecked with lanterns set up for the holy month that began June 6, AP reported.
Annual inflation hit 12.23% in May—the highest level in seven years—driven partly by dollar appreciation. The economy has yet to recover from the 2011 uprising that toppled longtime autocrat Hosni Mubarak.
In an attempt to soften the impact on low-income families, the government has opened new, mobile markets offering basic products at discount prices, and the army has fed and distributed basic goods to the poor in highly publicized events. President Abdel Fattah el-Sissi and other officials have meanwhile tried to deflect some blame about higher costs toward alleged manipulation by dishonest traders.
“Although giving out bags of basic goods is good and it helps, it cannot be a solution,” said economist Omar el-Shenety of Cairo-based investment bank Multiples Group, adding that inflation has more “chronic” causes. Egypt’s imports are more than double its exports and include essential basic goods like wheat, which must be bought in dollars.
Pound Losing Value
In March, Egypt’s central bank devalued the pound by over 14%, setting the dollar at 8.85 pounds compared to 7.73 previously. On the black market, traders are paying up to 11 pounds per dollar.
In an attempt to shift demand inwards, the government has raised import duties on several products, especially those it labels as luxury goods—including nuts and fruits. It has also restricted some imports, which el-Shenety says exacerbates the problem. “The resulting lack of goods raises prices even more,” he said.
Electricity and water bills are also rising, fuel is more expensive, and pharmacies are running out of some medications, fueling anger on social media. The government has severely cracked down on protests over the past two years, making it virtually impossible to air grievances in public.
May’s inflation was also influenced by a Health Ministry decision last month to increase prices of some locally manufactured drugs by 20%, said economist Mohamed Abu-Basha of EFG-Hermes.
With parliament set to pass a value-added tax later this year, prices are expected to rise even more.
“Egypt’s lower classes are already facing a real problem, but the purchase power of the country’s middle class are also being eroded,” el-Shenety said.
