Egypt's inflation pyramid: inflation surges to 35.7 percent in June

Official data released on Monday revealed that Egypt's year-on-year headline inflation reached an unprecedented 35.7 percentin June, exceeding the previous record of 32.7 percent in May. This sharp acceleration highlights the acute economic challenges faced by the country since early last year and marks the highest inflation rate witnessed since 2017.

Since March 2022, Egypt has experienced significant challenges, as it has faced a scarcity of foreign currency and undergone multiple currency devaluations. The resulting inflationary pressure has further exacerbated the hardships experienced by Egyptians, who have witnessed a gradual erosion of their living standards in recent years.

Analysts had forecast a significant increase in annual urban consumer price inflation for June, attributing it to an unfavorable base effect and a rise in consumer demand during the annual Eid al-Adha festival.

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The central bank of Egyptreported that core inflation, which excludes fuel and certain volatile food items, also reached a new record high of 41 percent, surpassing the previous month's figure of 40.3 percent. This persistent surge in inflation may exert pressure on the central bank to raise interest rates at its upcoming meeting scheduled for August 3. Notably, the bank has maintained interest rates unchanged in its last two meetings, following a cumulative increase of 1,000 basis points since March 2022.

In the aftermath of Russia's invasion of Ukraine, Egypt, the Arab world's most populous nation, took decisive action to address its economic vulnerabilities. This included a significant currency devaluation of over 50% since March 2022. The realization of these vulnerabilities prompted Egypt to seek financial assistance from the International Monetary Fund, resulting in a successful application for a $3 billion loan.

The first review of the IMF program, which was scheduled to take place, has been delayed due to uncertainties surrounding Egypt's commitment to implementing a flexible currency exchange rate and the government's efforts to bolster the private sector. Notably, these endeavors include the sale of stakes in state-owned enterprises.

In an attempt to mitigate the impact of inflation, the Egyptian government has taken steps to raise electricity tariffs, which could reinforce price pressures through the summer. Reuters quoted Allen Sandeep from Naeem Brokerage, who suggested that a rise in power tariffs in July might lead to an extended period of elevated annual inflation. However, even without the power rate hike, there may still be a degree of cooling in July due to the favorable comparison with the previous year's figures.