Egypt’s annual inflation rate accelerated to 15.5% in August, driven to its highest level in at least seven years by the weakening of the currency and an increase in electricity prices.
Consumer prices rose 1.9% in the month, according to data published by the state-run CAPMAS statistics agency. Food and beverage prices, which account for the largest component of the basket of goods and services, climbed 19.3% in August compared to the previous year and 1.6% in the month.
“The numbers were going in that direction,” said Reham El-Desoki, senior economist at Dubai-based investment bank Arqaam Capital. “You have a very strong negative base effect at this point and it’s going to get worse.”
She predicted inflation would accelerate to as much as 20% by the end of the year. The August rate was the highest since Bloomberg started tracking the data in 2009, and El-Desoki said it was the highest since December 2008.
Inflation is quickening as Egypt tries to finalise a $12bn International Monetary Fund loan. The government has promised to implement a range of economic reforms, including spending cuts and the new value-added tax parliament approved last month.
El-Desoki attributed the acceleration in August to factors including the “pass-through effect from the continuous fall of the Egyptian pound” on the black market and the increase in electricity prices by as much as 47% last month. The pound is trading on the black market at a discount of about 30% to its official rate against the dollar.
The central bank weakened the currency by about 13% in March in an attempt to attract investments and ease a dollar shortage hampering growth.
Economists have said the new 13% VAT, which will rise to 14% in the next fiscal year, will add as much as 2 percentage points to headline inflation. It’s part of a broader package of measures designed to revive an economy that has struggled to rebound following the 2011 ouster of former president Hosni Mubarak.