Egypt’s economy is expected to take a hit following a rise in its inflation rate

Egypt’s inflation grew from 21.3% in December 2022 to 25.8% in January 2023.
The increase came after a string of currency devaluations beginning in March 2022.
Non-alcoholic drinks and food account for 32.7% of the index's basket.

According to figures from the statistics office CAPMAS, Egypt's annual urban consumer price inflation increased faster than anticipated in January, from 21.3% in December to a higher-than-anticipated 25.8%. This is the highest rate in more than five years.

The increase came after a string of currency devaluations beginning in March 2022, a protracted foreign cash scarcity, and ongoing delays in importing goods. Since March, the Egyptian pound has decreased by about 50%.

According to the Atlantic Council, analysts estimate that inflation will continue to rise over the upcoming months, given the country's limited foreign currency reserves further burdening low-income people who are already struggling to make ends meet.

Also, considering that roughly 30% of Egyptians live in poverty, this development is concerning. A fresh wave of social upheaval in the most populous nation in the Arab world may potentially result from growing resentment over the enormous price increases, with profound political and security repercussions for the whole region.

At the same time, the nation's foreign reserves have considerably decreased, reaching $34 billion in December 2022, barely enough, according to the Central Bank of Egypt, to pay Egypt's imports for 5.4 months. The Egyptian pound has been under pressure recently, leading the government to approve the third devaluation of the country's currency in less than a year. On January 11, the official market saw the Egyptian pound hit 32 to the dollar by noon before recovering to 29.6 the following day.

Reuters shares a similar sentiment. According to a report by the news agency, economists had expected a reading of 23.75%, according to the median forecast in a Reuters poll of 14.

Five economists predicted that core inflation would increase from 24.4% in December to 26.6%. Later on Thursday, the central bank is anticipated to reveal the January data.

Although non-alcoholic drinks and food account for 32.7% of the index's basket, overall headline inflation rose due to manufacturers continuing to pass on higher import costs to consumers, according to Allen Sandeep of Naeem Brokerage.

Prices increased by 4.7% month over month as opposed to 2.1% in December, driven by a monthly increase in food and beverage costs of 10.1%, according to Sandeep.