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Egypt’s inflation rate makes record jump in February

A woman shopping at a Cairo market. Egypt's inflation rate increase was driven by large spikes in the cost of food, health and education Reuters/Mohamed Abd El Ghany
A woman shopping at a Cairo market. Egypt's inflation rate increase was driven by large spikes in the cost of food, health and education
  • Rise takes analysts by surprise
  • Surge follows slide in pound’s value
  • Spikes in food and health costs

Inflation in Egypt rose unexpectedly in February, authorities reported this week, just days after the pound plummeted more than a third against the US dollar.

On Sunday, the Egyptian state statistics agency Central Agency for Public Mobilisation and Statistics (Capmas) announced that annual urban consumer price inflation rose to 35.6 percent last month, from 29.8 percent in January. 

The 11.4 percent month-on-month increase is a record for the north African republic.

The increase was driven by large spikes in food, health and education prices. The biggest increase in prices were for alcohol and tobacco, which increased 93.5 percent year-on-year and 8.5 percent compared to January.

The surprise increase caught analysts off guard. Inflation had been falling steadily since it hit an all-time high of 38 percent in September. Reuters had previously polled 14 analysts who expected inflation to fall to 25 percent in February.

Later on Sunday, Egypt’s central bank (CBE) announced that core inflation, which excludes fuel and some volatile food items, rose comparably in February from 29 percent to 35.1 percent.

The Cairo government last week allowed the pound to slide from 30.85 to 49.15 against the dollar.

Hours before floating the pound, the CBE hiked interest rates by a record 600 basis points to 27.25 percent in what Allen Sandeep of Naeem Holding described in a note as a “front-loaded move to tackle inflation”.

There are fears of how the depreciation of the Egyptian pound might exacerbate rising prices. The government has long cited the inflationary impact of floating the pound as an impediment to doing so. 

Analysts are divided on how significant the new exchange rate will be in affecting inflation and the extent to which increases have already been priced in. 

James Swanston, Mena economist at Capital Economics said that more will become clear as the dust settles but that the new rate might not be “as harsh of an adjustment” as was previously feared.

“Maybe some of the pain is already being felt because people are already using the blackmarket rate,” Swanston said.

Political analyst Maged Mandour said he believes the devaluation “will have a major impact”. 

Citing increases in fuel prices, which were not directly affected by the black market, Mandour suggested that inflation could be as high as 45 percent later this year.

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