Egypt’s urban consumer prices
rose the fastest in at least six years in December, fueled in part by a 28.3 percent increase in food costs following the central bank’s decision
to abandon currency controls two months ago.
Annual urban inflation accelerated to 23.3 percent in December, while the monthly rate quickened to 3.1 percent, according to the state-run statistics agency, CAPMAS. The monthly rate decelerated from 4.8 percent in November.
The annual rate was the highest since Bloomberg started tracking the data in 2010.
The government said the Nov. 3 decision to free the exchange rate and raise fuel prices was imperative to revive the economy, but it was also expected to boost inflation. Economists had forecast annual consumer prices would rise more than 20 percent by the end of 2016.
High annual headline inflation is expected to continue for several years before dropping to single-digit levels by the end of 2019 or early 2020, Reham ElDesoki, senior economist with Dubai-based Arqaam Capital, said in a research note.
“Egypt now is in the eye of the policy restructuring cycle, and the price is higher inflation and an overall fiscal deficit pending a structural change in government spending and general repricing of goods and services,” she said. “A reversal of over 50 years of comprehensive government support will take time and is a welcome change to put Egypt on a more sustainable path to growth and fiscal consolidation.”
The reforms, which helped the nation finalize a $12 billion International Monetary Fund loan, have created new hardships in the country of 92 million people, about half of whom live near or below the poverty line. The pound has lost more than half its value in a slide that officials have said is temporary and to be expected until a market equilibrium is achieved.
The flotation has allowed the banks to again step in and make hard currency available, in effect ending a dearth of dollars that had crippled business activity, officials have said. The central bank is expected to release core inflation data, which exclude volatile items, later Tuesday.
Egypt will begin testing appetite for its debt in international bond markets next week with a Jan. 17 Dubai roadshow for a long-awaited Eurobond issuance, as the government seeks to raise funds two months after floating the currency.
Officials want to gauge the likely response from investors before announcing the planned sale amount, a government official said, speaking on condition of anonymity because the details are yet to be made public. Finance Minister Amr El-Garhy said in November that the government was seeking up to $6 billion from Eurobond sales in 2017.
The issuance comes at a critical time for Egypt. The central bank has been seeking to boost foreign reserves since the Nov. 3 floating of the pound — a step that helped seal a $12 billion International Monetary Fund loan deal, and which had been eagerly sought by investors wary of returning to the Egyptian market.
Egypt has one of the Middle East’s biggest budget deficits but as it
looks to curb spending the government has to allay the concerns of a population of 92 million, around half of whom live near or below the poverty line.
Since the central bank freed the exchange rate, the pound has lost more than half its value. Meanwhile, inflation has been climbing. Core consumer prices rose almost 21 percent in November, further testing the patience of a nation that has lived through more than five years of economic decline and insecurity since the 2011 ouster of President Hosni Mubarak.