High food prices that were a factor behind the revolution in Egypt showed no sign of abating last month as inflation accelerated to 11.5 per cent.
That compares with 10.7 per cent in February, the 18th month in a row that annual consumer price rises in Egypt's urban areas have been in the double digits. Food prices drove the increase in inflation last month, according to Central Bank statistics, rising at an annual clip of 21.5 per cent.
At vegetable markets in downtown Cairo, shoppers and merchants said yesterday they were becoming increasingly concerned about rising food costs.
"This is making me very worried and leaving me with less money at the end of each month," said Madhat Mohammed, a government employee who was shopping for tomatoes at a small vegetable market on Alfi street. "The government should have intervened yesterday to prevent the price rise."
Mr Mohammed and other shoppers pointed in particular to tomatoes, a staple of Egyptian cooking that has increased in price to between 6 Egyptian pounds (Dh3.70) and 7 pounds per kilogram, from 1 to 2 pounds at the same time last year.
Salwa Shehada, a vegetable seller for 12 years on Alfi street, said prices for courgettes, peppers and cauliflower were the highest she had ever seen. She said her suppliers told her the bad winter was the main cause of the higher prices.
Analysts say persistently high inflation poses challenges for a planned transition to democracy following the popular revolt that toppled Hosni Mubarak, the former president, in February. The formation of Egypt's new political order begins with presidential elections later this year.
In the lead-up to the elections, Egyptian newspapers are running almost daily stories on the rising price of cooking gas bottles, which are fixed at an official government price of 3.5 Egyptian pounds per canister but now sell for as much as 25 pounds each on the street. Beef prices, at 65 pounds per kilogram, have increased from between 45 and 50 pounds a year ago and attracted their own share of attention in the press.
"Inflation has been a problem in Egypt and persistently high figures will only contribute to complicating the path towards normality," said Ghanem Nuseibeh, a partner at Cornerstone Global Associates and political risk analyst with Political Capital.
"High inflation, especially at times like those facing Egypt, invariably leads to potentially higher political instability and socioeconomic unrest. In the absence of a clearly mandated permanent political regime, the country risks falling victim to a vicious cycle of political unrest, fuelled by economic problems, among other things."
Beltone Financial, an Egyptian investment bank, said in a note yesterday inflation last month was higher than anticipated. But Beltone analysts said they did not expect the Central Bank of Egypt to respond by raising interest rates at a monetary policy meeting on April 28.
Central banks commonly try to contain inflation by raising rates and thus restricting the supply of money in the economy - a move that would not depress food prices set in regional and international markets.
"Hiking rates to combat inflation that is led by food prices would have a limited effect, if any, on inflation," the bank said.
Egypt's economy has taken a beating in the aftermath of the revolution. As inflation stays elevated, economists are revising predictions for economic growth downwards, citing the country's stalled tourism industry and reduced industrial production.
Samir Radwan, the Egyptian finance minister, said this month growth could slow to between 2.5 and 3 per cent this year. Egypt's GDP grew by 5.3 per cent last year compared with 2009, according to IMF estimates.
"Contraction in [the] tourism industry would shave off some 2 to 3 percentage points from headline growth, which along with contracting investments would bring annual GDP growth to the 1 to 2 per cent [year-over-year] range," economists at the Bank of America Merrill Lynch said in a quarterly report on the region released yesterday.
High inflation has long been a concern across the Middle East, but combating price rises has emerged as a crucial priority in countries where popular unrest has flared. Protests have centred on democracy and political freedoms, but rising prices have also stoked discontent.