- Egypt raises interest rates to highest since at least 2006
- Officials worry that rising prices will stoke unrest
Twelve people are seated around the dining table at Mokhtar Gamal’s house, their mouths dry and bellies empty after a day of fasting during the holy month of Ramadan. Platters of food fill the table, and all eyes are on the stuffed grape leaves that are his wife’s specialty.
Family and guests dig into plates heaped with rice, grape leaves and chicken breasts, washing it down with pitchers of juice. A smile is fixed on Gamal’s face, but his mind is on one thing: How much this feast costs.
A quick mental calculation puts it at 10 percent of his monthly salesman’s pay of 3,000 pounds ($338). “I told my wife to take it easy on the nuts” when she’s making desserts, he said over coffee recently. “Nut prices have shot up.”
That middle-class Egyptians like Gamal must scrimp on nuts gives a sense of the economic hardships his country faces. Core inflation is at a seven-year peak and a foreign currency crunch is impeding investment and growth, driving Egypt’s central bank last week to raise its benchmark interest rate to its highest in at least a decade.
President Abdel-Fattah El-Sisi has ordered authorities to stabilize prices and his government is distributing discounted food, in a bid to stave off the kind of dissatisfaction with his leadership that erupted into demonstrations just weeks ago. He’s failed to quell militants based in the Sinai peninsula who’s attacks have discouraged tourism. Critics accuse him of curtailing liberties and dissent, a charge he denies.
Annual core inflation soared to 12.23 percent in May, two months after the central bank ordered the biggest one-time currency devaluation in more than a decade. With the pound officially trading at a 25 percent premium to black market dollars, policy makers on Thursday tried to rein in prices by raising borrowing costs by 100 basis points, possibly setting the stage for another devaluation.
The inflationary spiral has made things especially tough during Ramadan, when food prices generally jump. Within the past three weeks the cost of food has climbed, with a kilogram (2.2 pounds) of rice, an Egyptian staple, nearly doubling in some markets to 9 pounds from 5 pounds. Even before the holiday, they had spiked nearly 50 percent since the start of the year, according to the central bank.
Supply Minister Khaled Hanafy, in a meeting with El-Sisi on Sunday, said the ministry had boosted the support it provides to Egyptians by 20 percent in an effort to stabilize the price of key staples during Ramadan, the state-run Al-Ahram newspaper reported Monday. In the meeting, El-Sisi also ordered authorities to step up their monitoring of prices.
“Merchants took us by surprise. How can prices jump” like this? asked Mahasen Ali, a 45-year-old housewife. “What are people to do?”
Higher duties on so-called “luxury” items such as nuts put them further out of reach for most. Egyptians have also been bruised by a 20 percent increase in the cost of locally produced medicines, which the government authorized to compensate drugmakers facing higher production costs as a result of the weaker pound.
As Egyptians struggle with the price increases, officials are asking them to help stem the outflow of hard currency.
Television ads urge them to curb energy use and buy local products to help cut the import bill and shore up foreign reserves. At $17.5 billion, reserves have only started to inch up in the past couple of months, though still less than half of their levels on the eve of the uprising that toppled President Hosni Mubarak in 2011. Tens of billions of dollars in cash infusions by Saudi Arabia, United Arab Emirates and Kuwait have tapered off because of lower oil prices.
The government is also looking to save by paring subsidies that consume roughly a quarter of the state budget. It’s also looking to boost tax revenue by improving collection, and introduce a value-added tax seen as a key step to unlocking a long-awaited $3 billion World Bank loan.
Combined with expectations of another devaluation, inflation “could rise toward 15 percent year-on-year during the second half of 2016” as the government moves ahead with reforms, Bryan Plamondon, IHS Global Insight’s Middle East economic analysis director, said in an e-mailed report.
Barely a month after protests against El-Sisi’s decision to cede two Red Sea islands to Saudi Arabia, the government is aware of the need to avoid reigniting public discontent.
It has set up markets selling discounted food -- chicken and beef, for instance, are going for as little as half price -- and the military has been distributing goods on the street.
Thousands lined up at a food fair at the Cairo convention center, waiting to buy everything from Ramadan staples such as apricots and nuts to meat, rice, sugar and cleaning products. A similar fair was held in every one of Egypt’s 27 provinces.
“If it wasn’t for this fair, we wouldn’t have been able to buy these things,” said Adel Abdel-Baset, a 48-year-old construction worker, standing in one line while his wife waited in another. “Prices have increased in an unprecedented way.”