New Delhi

Egypt’s inflation rate witnessed an unexpected surge in February, marking a notable acceleration even before the much-anticipated flotation of the Egyptian pound.

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According to data released by the state statistics agency CAPMAS, consumer prices in urban areas of the North African country rose by an annual 35.7 per cent last month, compared to 29.8 per cent in January.

This unexpected rise has sparked concerns about the economic outlook despite efforts to stabilise the country’s troubled economy.

Factors driving inflation

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A significant factor contributing to the inflation surge was the sharp increase in food and beverage prices, which constitute a substantial portion of the inflation basket.

These prices saw an annual rise of 50.9 per cent and a monthly increase of 16.7 per cent.

Bloomberg cited Allen Sandeep, the director of research at Naeem Holding in Cairo, who highlighted "unexpectedly large spikes" in various sectors including food, health, education, and recreation.

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Sandeep also noted that the recent record interest rate hike was a proactive measure aimed at addressing inflationary pressures.

Currency flotation impact

The decision to let the Egyptian pound tumble by more than 38 per cent on March 6, in order to secure a new $8 billion deal with the International Monetary Fund (IMF), has raised questions about its impact on inflation.

President Abdel-Fattah El-Sisi defended the move, citing national security concerns and the need for substantial funds to stabilise the market.

However, uncertainties remain about the potential repercussions of the currency depreciation on consumer prices and overall economic stability.

Economic challenges and policy responses

Egypt has been grappling with its worst economic crisis in decades, exacerbated by the COVID-19 pandemic and longstanding structural issues.

The recent currency flotation was preceded by efforts to secure investments, including a landmark $35 billion deal with the United Arab Emirates.

The central bank's decision to hike interest rates by 600 basis points was aimed at curbing inflation and streamlining the exchange rate system.

However, the unexpected surge in inflation highlights the complexities of navigating the country's economic challenges.

Future Outlook

Economists remain divided on the potential impact of the currency depreciation on consumer costs.

While the black market exchange rate has significantly influenced pricing dynamics in recent years, uncertainties persist regarding the extent to which the currency's plunge will translate into further inflationary pressures.

With imports constrained and dollars in short supply, the economy faces continued volatility as authorities strive to stabilise prices and restore investor confidence.

(With inputs from Bloomberg)