Soaring food prices have pushed Egypt's urban inflation rate to its highest level for more than 15 years, mirroring other countries in the region. Egyptian cities now face a 22 per cent increase in prices in the year to July, up from 21.1 per cent in the year to June, the official statistics agency of Egypt, Capmas, announced yesterday.
Price rises were also reported in Jordan and Oman. Monthly Egyptian inflation rose 2.2 per cent, as opposed to just 0.6 per cent in June, while prices rose by 24.3 per cent in rural areas. Overall in Egypt - in both the cities and the countryside - the inflation rate rose to 23.1 per cent in the year to July. The new figures come just days after the central bank raised interest rates for the fifth time this year, in its ongoing battle against soaring commodity prices.
Last Friday, the bank's monetary policy committee increased its overnight deposit and lending rates by half a per cent each, to 11 and 13 per cent respectively. The discount rate was also raised by a full percentage point to 11 per cent. The bank made clear that its primary concern was rising international food prices and their potential to spread their toxicity to other sectors of the economy: "The [committee] remains concerned about possible propagation of food inflation to non-food inflation," it said.
EFG-Hermes, the investment bank, said interest rate rises were only one weapon in the government's armory. "Recent policy rate increases... have had only limited effectiveness due to [the] abundant liquidity in the banking system and low loan-to-deposit ratios," it said in a note to clients. The central bank is likely to allow the Egyptian pound to appreciate against the US dollar "as a more effective means of addressing inflation", the bank added. The pound has already gained more than seven per cent against the US dollar since the start of last year.
With the economy growing at its fastest pace in decades, rising inflation has emerged as a tough challenge for the government in a country that has a low per capita income and high poverty rate, relative to other Middle East nations. Soaring food prices triggered violent protests in some parts of the country this year. This prompted the government to raise public sector salaries by 30 per cent and then nudge up fuel prices to finance the wage increase.
Price rises in urban food and beverages, which slowed down in the month to June at a rate of 0.8 per cent, accelerated again in July to a rate of 3 .1 per cent. Reham el Desoki, a senior economist at Beltone Financial, said only a significant long-term decline in the prices of global commodities would help stabilise prices in Egypt. "This is due to ? vendors maintaining their prices at current levels to try to maximise their profits, especially with a market-based pricing system that does not impose price caps on products and services prices," she added.
In the UAE, the price of many staples is capped, but the measures have had only limited success in taming inflation, which stood at 11.1 per cent last year. Such inflation concerns are not exclusive to Egypt, with Oman and Jordan both having to deal with the effects of high international food costs. Jordanian inflation rose to an annual 19.4 per cent in July as the prices of food, housing, clothing and services increased after the government removed fuel subsidies.
The inflation rate rose from an annual 16.6 percent in June, the government Department of Statistics in Amman said yesterday. Consumer prices rose 2.3 per cent in the month. Food prices jumped 21.9 per cent, clothing rose 6.7 per cent, housing 19.4 per cent and other goods and services increased by 17.4 per cent, the department said. Jordan, which imports all its oil, abolished fuel subsidies in February, causing the price of kerosene and diesel to rise 76 per cent in February, 8 per cent in March, 5 per cent in May, 12 per cent in June and 9.2 per cent in July.
Only days ago did the government announce it was cutting fuel prices by five per cent, just as global oil prices begin to fall back from their peak. Factory gate prices in Jordan rose by an annual 75 per cent in June, with manufacturers and miners the biggest contributors, official data showed. The cost of goods leaving factories rose by an annual 72 per cent and mining goods by 131 per cent. Oman's inflation rate reached a record 13.73 per cent in June from 13.24 per cent in May, as food prices soared, official data showed yesterday.
Monica Malik, the senior economist at EFG-Hermes, said: "There always seems to be a jump around Ramadan, but we possibly see it coming to a peak soon." Analysts attributed the record price surge to increasing food prices and a currency peg to the weak US dollar, which is pushing up costs. Food, drink and tobacco costs, which account for almost a third of the consumer price index, jumped 23.7 per cent, the Oman Ministry of National Economy said.
Part of the reason that countries in the region are suffering an inflationary spike is because of higher import costs, which cannot always be countered if, like the UAE, Oman and Saudi Arabia, the currencies are pegged to the dollar. * with Agencies @Email:afoxwell@thenational.ae
