Egypt Fears Fuel Price Hikes Fan Inflation

Hisham Gaber had been preparing his wedding for months, but started to have second thoughts as inflation in Egypt rocketed due to government austerity measures, including sharp increases in fuel prices. “Marriage and handling the additional burdens in these conditions have become an unsound decision,” said the 28-year-old engineer.

The government on Thursday announced an increase in fuel prices of up to 55%, the second since November when it also floated the currency in an IMF-backed reform program, which fuelled inflation, AFP reported.

Analysts believe the fuel price rises will further increase inflation although it was announced to have decreased in May to an annual rate of 30.9%, from 32.9% the previous month. “Prices are still rising but not as sharply as before,” said Amr Adly, an analyst with the Carnegie Middle East Center.

Radwa El Sweify, an analyst with Pharos Holding for Financial Investments, believes that inflation will spike. “Inflation over the next two months may rise to 34-36% but the rate of inflation in the last two months of this year will be less than the same period last year when the pound was floated,” she said.

The pound has depreciated sharply from 8.8 per dollar to 18—following its flotation, which came after the International Monetary Fund agreed a $12 billion loan disbursed over three years.

The move, in a country that relies on imports, drove inflation to a record high in April. “The exchange rate is key to price fluctuations in a country where food and medicine make up more than 40% of imports,” said Adly.

 Prices Have Tripled

The government has announced a raft of measures to protect low income Egyptians, saying it boosted social spending to 75 billion pounds ($4.1 billion). About 28% of Egypt’s 90 million people are poor, according to official figures from 2015.

But government social spending will cover only between 40% and 50% of the recent price hikes, said El Sweify. “The government doubled social spending, but prices have tripled,” she said.

With the latest fuel increases that affect transport costs, the prices of vegetables and fruits may rise by between 20 and 25%, said Omar El Shenety, the founder of Multiples Group, an investment firm.

Prime Minister Sharif Ismail said the fuel subsidies were straining government financing. The projection for next year at the same levels “is 150 billion pounds. This is a big number that neither the oil sector nor the budget can handle,” he said at a press conference.