Again, inflation rates have increased in Egypt recently, despite the central bank’s fixation of interest rates, during its last meeting last month. The reform measures undertaken by the Egyptian government since November 2016 caused inflation rates to jump to record and historic levels in Egypt, reaching a peak in mid-2017, when it exceeded the level of 34 per cent. However, with the central bank’s intervention and the movement of interest rates, inflation began to decline until its rates stabilised in the range of five per cent during the past year.
According to the data announced by the Central Agency for Public Mobilisation and Statistics in Egypt, the annual general inflation rate in all governorates of the republic rose to a level of 4.8 per cent during last March, compared to about 4.6 per cent in February. In contrast, the general annual inflation rate in some Egyptian cities stabilised at 4.5 per cent. According to the Egyptian Statistics Authority, inflation was recorded at about 0.6 per cent during last March, compared to about 0.6 per cent in March of last year and 0.2 per cent during February of this year.
Inflation readings for March revealed it was rising again, after rising in February, following a successive decline since last November. In a recent research note, the investment bank Pharos confirmed that this rise in inflation rates is normal with the approaching month of Ramadan, as it is natural for inflation to rise in the month preceding Ramadan each year. He pointed out that what is happening now is that suppliers and producers expect high consumer demand, thus raising prices in preparation for the expected demand. Besides, the pressure to import and store foodstuffs before Ramadan is also contributing to the rise.
According to what was revealed by Beltone Financial Holding, it is expected that the coming days will witness further increase in inflation rates, especially during the second and third quarters of this year, reflecting the rise in global commodity prices. It stated that the volume of price increases over the next few months would be less than March.
Pharos expects inflation in Egypt to end the fiscal year 2020-2021 at an average of 4.7 per cent, while the calendar year 2021 will end at an average of five per cent. He stated that, given the changes in crude oil prices during March, petroleum products might rise to compensate for the reductions that took place in March of 2020. However, there is still a strong possibility that the Automatic Pricing Committee for Petroleum Products will keep prices unchanged, depending on the continuous support the sector has received from the government during the outbreak of the pandemic.
At the same time, CI Capital expects that the Central Bank of Egypt will continue to fix interest rates during the current year. It stated that while the reduction in interest rates must be supported by annual general inflation, the increase in monthly food prices and the increase in commodity and oil prices globally indicate the possibility of fixing interest rates during the monetary policy committee meeting scheduled for April 29.
The IMF expects that the debt burden will be greater than it was estimated, as Egypt’s public debt ratio is expected to reach 93 per cent of GDP by the end of the current fiscal year, compared to 90.2 per cent in the previous year. These expectations are much higher than the IMF’s expectations in its report issued last October, which indicated an increase in the debt-to-GDP ratio from 86.6 per cent to 90.6 per cent during this year. The report suggested that the debt-to-GDP ratio would decline faster in the following years to reach 73.4 per cent during the fiscal year 2025-2026, compared to about 77 per cent in the fund’s previous report.