Egypt witnessed record-high annual headline inflation at 36.5% in July, surpassing the previous month's rate of 35.7%, primarily driven by a renewed increase in food prices, official data showed Thursday.
Soaring prices The increase was driven by a 68.4% rise in food and beverage prices, the largest single component of the inflation basket, according to data released by the country’s statistics agency CAPMAS. On a monthly basis, Egypt’s inflation was at 1.9%, down from 2.1% in June.
The third month of acceleration follows a rise in the key overnight interest rates by 100 basis points (bps) last week by the Central Bank of Egypt in a bid to contain inflationary pressures.
The overnight deposit rate, overnight lending rate, and the rate of the main operation were raised to 19.25%, 20.25%, and 19.75%, respectively. The discount rate was also increased by 100bps to 19.75%.
The central bank’s Monetary Policy Committee (MPC) believes a 100 bps policy rate hike is needed to contain inflationary pressures in the economy.
International markets The country’s inflation has been bearing the brunt of three devaluations of pound since early last year, resulting in the country securing $3 billion from the International Monetary Fund (IMF).
Egypt’s growing reliance on international markets is the root cause of its current problems, and massive ongoing financial needs remain a key challenge for the country, according to a Standard Chartered report in May.
The North African country’s external debt has risen in recent years due to its current account deficits. While non-debt flows, such as foreign direct investments (FDI), fund part of this debt, a big part is funded through external debt and foreign portfolio inflows to local-currency debt markets.
In April, liquid foreign reserves dipped to $26.5 billion from the $36.7 billion in January 2022 due to large outflows from local-currency markets and the inability to issue fresh external debt last year.
