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Egypt Struggles with Escalating Inflation, Registers Highest Rate on Record.

Egypt inflation rate reached a new peak in June, hitting 35.7 percent, according to data released by the Central Agency for Mobilization and Statistics (CAPMAS) on Monday.

This figure represents a significant increase from the 32.7 percent recorded in May, highlighting the escalating inflationary pressures in the country.

The primary drivers of inflation, namely food and beverage prices, experienced a staggering surge of 64.9 percent in June compared to the same period last year.

Furthermore, the category encompassing alcohol and tobacco witnessed a notable increase of 45.4 percent. Among food items, grains, meat, poultry, fish, and fruit observed the most substantial price hikes.

Prices in Egypt have skyrocketed due to a lack of foreign currency and frequent devaluations since March 2022. This has made life even more difficult for many Egyptians, as their living conditions have worsened over the past few years.

When compared to the previous year, the inflation rate in June 2023 has more than doubled, as it stood at 14.7 percent in June 2022. The bureau responsible for analyzing the data attributed the rise in monthly inflation to specific factors.

The prices of meat, poultry, fish, and seafood rose by 3.3 percent, while dairy, cheese, and eggs increased by 0.4 percent.

 Additionally, fruit prices experienced a notable rise of 5.7 percent, and coffee, tea, and cocoa prices increased by 4.4 percent. Furthermore, alcohol prices rose by 9.3 percent, and tobacco prices surged by 18.4 percent.

In terms of other sectors, the cost of clothing and shoes rose by 2 percent, fabrics by 2.1 percent, and ready-made clothing by 2.1 percent. Shoes, as a separate category, experienced a modest increase of 1.4 percent.

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The overall cost of housing, water, electricity, gas, and fuel rose by 0.4 percent, with a 0.6 percent increase in rentals, maintenance, and repair, and a 0.4 percent increase in water and other housing-related services.

Healthcare costs also saw an upward trend, rising by 1.8 percent due to a 2 percent increase in the prices of medical products, devices, and equipment. Hospital services also experienced a rise of 1.9 percent.

Core inflation, which strips out fuel and some volatile food items, also hit a record of 41%, up from 40.3% in May, the central bank said.

The Egyptian central bank may come under more pressure to hike interest rates at its upcoming meeting on August 3 due to the ongoing rise in inflation. After hiking rates by a total of 1,000 basis points since March 2022, the bank kept them at the same level in its most recent two sessions.

The Central Bank has been making efforts to curb inflation in recent months, employing measures such as raising its main interest rate and devaluing the local currency.

During the most recent monetary policy committee meeting, the bank opted to maintain the existing interest rates, leaving the overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged at 18.25 percent, 19.25 percent, and 18.75 percent, respectively. Similarly, the discount rate remained steady at 18.75 percent.

In the wake of Russia’s invasion of Ukraine, which exposed Egypt’s economic vulnerabilities, the Arab world’s most populous nation took decisive action by devaluing its currency by approximately 50% since March 2022.

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This step was taken as Egypt sought assistance from the International Monetary Fund (IMF) through a loan program amounting to $3 billion. The devaluation aimed to address the economic challenges faced by Egypt and bolster its financial stability in the aftermath of the geopolitical crisis.

In July 2017, just eight months after Egypt reduced the value of its currency by 50% as per an agreement with the IMF, the country experienced a significant rise in inflation. The headline inflation reached a record high of 32.95%. This means that the prices of goods and services increased at a very fast rate during that time.

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