Egypt’s urban inflation accelerated at its fastest pace in five years as several rounds of currency devaluation filtered through to consumers.
(Bloomberg) —
Egypt’s urban inflation accelerated at its fastest pace in five years as several rounds of currency devaluation filtered through to consumers.
Prices increased an annual 21.3% in December from 18.7% the previous month, the state-run statistics agency CAPMAS said Tuesday. The upswing was fueled by a 37.2% increase in food and beverage costs, the largest single component of the inflation basket.
Read: Egypt Pound Plunges in Third Devaluation in Less Than Year
Egypt allowed its currency to weaken twice in 2022, driving up the cost of imports that have already come under pressure from trade restrictions and the economic fallout of Russia’s invasion of Ukraine. Devaluation resumed last week, with declines that have made the pound the world’s worst performer against the dollar this year.
“The outlook for the currency remains unclear and will be a key determinant for the path of domestic inflation over the coming months,” Goldman Sachs Group Inc. analysts including Farouk Soussa said in a report before the data release.
Egypt is grappling with its worst foreign-currency crunch in years and has recently seen the emergence of a black market for dollars. It secured a $3 billion loan from the International Monetary Fund and sought help from its wealthy Gulf Arab allies.
Core inflation, the gauge used by the central bank that strips out volatile items, accelerated to 24.4% in December from 21.5% in November.
Read: Egypt Tightens Spending on Costly Projects Amid Currency Crunch
This week the government said it would curb state spending, including through halting costly new infrastructure projects. The central bank announced in December it was targeting inflation at an average of 7%, plus or minus 2 percentage points by the fourth quarter of 2024.
Allen Sandeep, director of research at Naeem Holding in Cairo, has said the latest bout of depreciation sets the stage for a pickup in inflation to around 23%-25% and higher government borrowing costs.
–With assistance from Tarek El-Tablawy and Abdel Latif Wahba.
(Updates with core inflation in sixth paragraph.)
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