Egypt’s Inflation Rate Drops to 12.5% Amid Economic Challenges

Egypt’s annual consumer inflation rate fell to 12.5% in February from 23.2% in January. The decrease is significantly influenced by last year’s high inflation rates. Despite this, many citizens have not experienced relief from increasing prices. The nation faces substantial foreign debt and ongoing economic pressures related to external conflicts.

Egypt’s annual consumer inflation rate fell to 12.5 percent in February, a significant decrease from 23.2 percent in January, as reported by official figures. This reduction is attributed to a base effect, which occurs when comparing current figures to last year’s dramatic price increases, particularly when inflation reached a peak of 36 percent. Expert Wael el-Nahas pointed out that the current inflation rate appears lower due to these comparisons.

The Central Agency for Public Mobilisation and Statistics noted a monthly inflation rate of 1.4 percent in February, a slight decline from January’s rate of 1.6 percent. Last year, Egypt faced a dire foreign currency shortage resulting in a crisis within its import-dependent economy, leading to daily rises in consumer goods prices. The economy has shown signs of recovery following a recent currency devaluation and a significant bailout involving over $50 billion in loans and investments.

Despite these positive indicators, many Egyptians still do not experience a reprieve from rising prices. Timothy Kaldas, deputy director of the Tahrir Institute, indicates that while the pace of price increases has lessened, household purchasing power continues to decline. Since February 2022, the Egyptian pound has depreciated by over 60 percent, with inflation peaking at nearly 40 percent in August 2023.

In response to an expanded International Monetary Fund (IMF) program, the government has implemented stringent reforms, which include three fuel price hikes this year. The IMF board is set to review this program and approve an additional $1.2 billion tranche during its forthcoming meeting. Additionally, the IMF plans to unveil a new loan agreement projected to be valued over $1 billion.

However, the burden of soaring foreign debt remains a significant challenge for Egypt, having increased fourfold since 2015 to $155.2 billion by September 2024. A large portion of this debt is associated with substantial infrastructure projects, including a new capital city east of Cairo. Furthermore, the ongoing conflict in Gaza has exacerbated the economic situation, with Houthi rebels targeting Red Sea shipping lanes, leading to a drastic reduction in revenue from the Suez Canal, which dropped by over 70 percent last year.

In summary, Egypt’s inflation rate has seen a notable reduction; however, the economic recovery remains fragile. Despite a decrease in annual inflation to 12.5 percent and support from the IMF, many Egyptians are still grappling with rising prices and diminished purchasing power. The challenges posed by escalating foreign debt and external geopolitical factors necessitate careful monetary policy and continued reforms.

Original Source: www.newarab.com