Egypt Inflation at 8-Year High

Official inflation figures released by the Central Bank of Egypt showed a steep rise in price pressures during November. The rate of consumer price inflation accelerated to 19.4% on an annual basis, the fastest in eight years.

The rise was partly a result of government policy. As part of an IMF-supported reform program designed to boost investor confidence, Egypt’s policymakers have freed the exchange rate in order to let the pound reach its true value. The extent of the depreciation showed how the currency had previously been overvalued; the pound has already lost 50% of its value against the US dollar, Seeking Alpha reported.

Other factors behind the sharp rise in inflation include higher fuel prices and the introduction of a value-added tax. Together, these price pressures have combined to drive the rate of inflation up from 13.6% in October to November’s eight-year high.

While the government’s measures are all part of a long-term commitment to the IMF which is designed to ultimately help Egypt’s economy in the long-run, they are arguably squeezing conditions in the short-term. The Emirates National Bank of Dubai Egypt PMI, a composite indicator of the health of the non-oil private sector, signaled a steep downturn in November.

Output, new orders and employment all fell substantially, according to the latest survey. Anecdotal evidence from panel members suggested that rising costs had placed pressure on both the supply and demand sides of the economy. The rate of input price inflation was the highest since data collection started in April 2011, often making raw materials unaffordable, and thus in short supply, at a number of firms. Greater cost burdens also led panelists to raise their charges sharply, which damaged client demand.