Dramatic currency drop leads to rising inflation in Egypt

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Egypt is still struggling with surging inflation as its currency dramatically declines, according to the country’s statistics bureau. The annual inflation was at 21.9% last month, up from 19.2% in November. Prices have risen across many sectors including food items, medical services, housing, and furniture, with food prices increasing by 4% on average in December, with fruits and dairy products leading the list with 7.6% and 6.4% spikes respectively.

The higher inflation has caused heavy burdens on the citizens, particularly on lower-income households, as nearly 30% of Egyptians live in poverty according to official figures. Jason Tuvey, an analyst with Capital Economics, predicts that the inflation rate will continue to pick up in the coming months as the Egyptian pound weakens.

The Egyptian economy has been heavily affected by a series of events: government’s ambitious reform program in 2016 to overhaul the country’s economy, which includes the flotation of the Egyptian pound and the slashing of subsidies for fuel, water and electricity, the outbreak of Russia’s war on Ukraine, the coronavirus pandemic, and the fallout from the war in Ukraine. Egypt is the world’s largest wheat importer, with most of its imports coming from Eastern Europe.

President Abdel Fattah el-Sissi described the situation as “very difficult,” and urged people to trust his administration. The government is trying to curb state spending, halted the implementation of costly new projects that consume foreign currency, and ordered state agencies to embark on austerity measures.

Decisions in recent months by the country’s Central Bank to raise its main interest rate and devalue the Egyptian pound have set off an economic shock that hit millions who found their savings running low as the cost of living surged. The measures were meant to fight increasing inflation and meet the requirements of the International Monetary Fund for a bailout loan amid a shortage of foreign currency.

The IMF approved a $3 billion support package for Egypt after a series of reforms, including the currency devaluation that saw the pound lose more than 40% of its value against the dollar since March 2022. The U.S. currency traded Tuesday at 27.5 pounds for $1.