Egypt’s Urban Inflation Rises, Seen Increasing Further

Egypt’s urban consumer inflation accelerated to 8.1 percent in the year to April, statistics agency CAPMAS said on Wednesday, fueled by rising food and energy prices and a struggling pound.

The rate rose from 7.6 percent in March and is expected to increase further as the government pushes through tax hikes and subsidy cuts to secure the lifeline of an international loan after two years of economic and political upheaval.

“This is in line with our expectations… You have a number of drivers, the weakening pound, energy shortages and the measures the government is taking to narrow its deficit,” said EFG-Hermes economist Mohamed Abu Basha.

He said he expected inflation to continue to rise through the year as the government pushes through austerity measures to secure a $4.8 billion International Monetary Fund loan to support the ailing economy.

“Earlier in the year there were two hikes of electricity prices… We are still expecting an increase in sales tax for a number of goods and services and then the plan to reduce subsidies will increase inflation further,” he said.

Such measures would be likely to fuel social unrest ahead of parliamentary elections expected in October. Many Egyptians are heavily reliant on subsidized goods, and more than 40 percent live on less than $2 a day.

Egypt has seen its foreign currency reserves drop by more than $20 billion since the uprising that swept Hosni Mubarak from power in February, 2011.

The central bank announced on Wednesday the reserves had climbed by $1 billion to $14.4 billion in April, but only thanks to a $2 billion deposit by Libya at the Egyptian central bank.

Reuters