Egypt Inflation Driven to Highest in at Least 7 Years

  • Increase linked to pound’s weakening, electricity price hikes
  • Economists see new value-added tax fueling inflation further

Egypt’s annual inflation rate accelerated to 15.5 percent in August, driven to its highest level in at least seven years by the weakening of the currency and an increase in electricity prices.

Consumer prices rose 1.9 percent in the month, according to data published by the state-run CAPMAS statistics agency. Food and beverage prices, which account for the largest component of the basket of goods and services, climbed 19.3 percent in August compared to the previous year and 1.6 percent in the month.

“The numbers were going in that direction,” said Reham El-Desoki, senior economist at Dubai-based investment bank Arqaam Capital. “You have a very strong negative base effect at this point and it’s going to get worse.”

She predicted inflation would accelerate to as much as 20 percent by the end of the year. The August rate was the highest since Bloomberg started tracking the data in 2009, and El-Desoki said it was the highest since December 2008. Annual core inflation, which strips out volatile items such as food, accelerated to 13.25 percent last month, according to the central bank. That’s its highest level since February 2009, according to data compiled by Bloomberg.

Inflation is quickening as Egypt tries to finalize a $12 billion International Monetary Fund loan. The government has promised to implement a range of economic reforms, including spending cuts and the new value-added tax parliament approved last month.

El-Desoki attributed the acceleration in August to factors including the “pass-through effect from the continuous fall of the Egyptian pound” on the black market and the increase in electricity prices by as much as 47 percent last month. The pound is trading on the black market at a discount of about 30 percent to its official rate against the dollar.

The central bank weakened the currency by about 13 percent in March in an attempt to attract investments and ease a dollar shortage hampering growth.

Economists have said the new 13 percent VAT, which will rise to 14 percent in the next fiscal year, will add as much as 2 percentage points to headline inflation. It’s part of a broader package of measures designed to revive an economy that has struggled to rebound following the 2011 ouster of President Hosni Mubarak.

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