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Abu Dhabi, UAEFriday 21 September 2018

Egyptian fuel price hikes fan inflation fears

Analysts believe increases will spur consumer prices

A sign at a petrol station shows the fuel price, in Cairo, Egypt June 29, 2017. The sign reads 'price of 92-octane gasoline has been put up from 3.5 Egyptian pounds per litre to 5 Egyptian pounds. 80-octane, increased to 3.65 pounds per litre from 2.35 pounds per litre'. REUTERS/Mohamed Abd El Ghany
A sign at a petrol station shows the fuel price, in Cairo, Egypt June 29, 2017. The sign reads 'price of 92-octane gasoline has been put up from 3.5 Egyptian pounds per litre to 5 Egyptian pounds. 80-octane, increased to 3.65 pounds per litre from 2.35 pounds per litre'. REUTERS/Mohamed Abd El Ghany

Hisham Gaber had been preparing his wedding for months, but started to have second thoughts as inflation in Egypt rocketed amid government austerity measures, including sharp increases in fuel prices.

"Marriage and handling the additional burdens in these conditions have become an unsound decision," said the 28-year-old engineer.

The government last week announced an increase in fuel prices of up to 55 per cent, the second since November, when it also floated the currency in an IMF-backed reform programme, which fuelled inflation.

Analysts believe that the fuel price rises will further increase inflation, although it was announced to have decreased in May to an annual rate of 30.9 per cent, from 32.9 per cent the previous month.

"Prices are still rising but not as sharply as before," said Amr Adly, an analyst with the Carnegie Middle East Center.

Radwa El Sweify, an analyst with Pharos Holding for Financial Investments, believes that inflation will spike.

"Inflation over the next two months may rise to 34 to 36 per cent, but the rate of inflation in the last two months of this year will be less than the same period last year when the pound was floated," she said.

The Egyptian pound has depreciated sharply from 8.8 per dollar to 18 following its flotation, which came after the IMF agreed a US$12 billion loan disbursed over three years.

The move, in a country that relies on imports, drove inflation to a record high in April.

"The exchange rate is key to price fluctuations in a country where food and medicine make up more than 40 percent of imports," said Mr Adly.

The government has announced a raft of measures to protect low-income Egyptians, saying it boosted social spending to 75bn pounds (Dh15.19bn).

About 28 per cent of Egypt's 90 million people are poor, according to official figures from 2015.

But government social spending will cover only between 40 and 50 per cent of the recent price hikes, said Mr El Sweify.

"The government doubled social spending, but prices have tripled," she said.

With the latest fuel increases that affect transport costs, the prices of vegetables and fruits may rise by between 20 and 25 per cent, said Omar El Shenety, the founder of Multiples Group, an investment firm.

The prime minister Sharif Ismail said the fuel subsidies were straining government financing.

The projection for next year at the same levels "is 150bn pounds. This is a big number that neither the oil sector nor the budget can handle," he said.

But despite widespread consternation among Egyptians, it is unlikely that the soaring cost of living will lead to unrest, Mr El Shenety said.

"The government's conviction that there will not be a backlash by people allowed it to make these reforms forcibly," he said.

Economic grievances had fuelled the 2011 uprising that overthrew Hosni Mubarak, ushering in years of unrest that decimated tourism and investment.

The president Abdel El Sisi has said the country has no choice but to undertake the tough economic reforms his predecessors had put off.

* AFP

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