After Egyptian pound flotation inflation rates are expected to rise by 18%
Government’s strict policy is part of the economic plan set to ignite dynamism in the market Prices of imported goods and cars are expected to increase
Prepared by
Rania Imam – Eiman Rashed
Mahmoud Hammad
Alaa Abdelwanis – Moharram Fouad
Economists expected that prices would increase over the coming period after Egyptian pound flotation and government’s move to cut fuel subsidiaries. Moreover, inflation rates are expected to rise by 18% towards the year’s end and prices will rise due to higher customs on the new dollar exchange rate. They called in statements to MEO for keeping customs dollar rate change at EGP 8.88 as well as keeping the diesel and gasoline 80 fuels at its previous rates to avoid price hikes.
Abu Bakr Emam, Head of Prime Bank’s Research Department, said “The price have recently reached its highest level during the last seven years. Moreover, inflation rate has exceeded 15% in the last three month because of foreign currency shortage in the market, forcing manufactures and importers to get their dollar needs from the parallel market, which led to an unprecedented increase in the prices of most goods and raw materials.
Emam added, “The flotation will have a little impact on non-basic commodity prices yet it will definitely increase after lifting subsidy over petroleum products. The large portion of the Consumer Price Index is food and beverages, which represent 40% of the inflation index, in addition to the health care, which represents 6%; They will increase given the fact that they are the most affected sectors by the Egyptian pound flotation”.
Emam pointed out, “Lifting subsidy over petroleum products will affect prices in general because the largest increase in the prices of petroleum products is likely to occur in diesel prices given the fact that 27% of diesel is used for transportation while 23% is used for industry. Therefore, if prices of diesel and gasoline are increased, the prices of other commodities will increase accordingly”.
The new prices included raising price of gasoline 80 to 235 piasters with 45% increase while raising price of gasoline 92 to 350 piasters with 35% increase in addition to raising price of diesel to 235 piasters with 30% increase. The government kept price of gasoline 95 at 625 piasters. Prices of household gas as well as butane cylinders have also increased.
Emam explained, “If USD to EGP exchange rate kept steady at 13-14 pounds until the end of this fiscal year in coincidence with lifting subsidiaries on petroleum products, price inflation rate would reach 18% by the end of this year”.
For his part, Hani Jeninah, Head of Beltone’s Research Department, said in a research note, “The decision to float Egyptian pound has many positive implications yet it will contribute to raising inflation rates to 25-30% during the first half of the next year 2017”.
Jeninah stressed, “The government will adopt stricter fiscal and monetary policies during 2017, which is nothing but a logical move. The Central Bank of Egypt (CBE) has already raised the interest rate by 300 basis points and it is likely to be increased again when needed in order to curb demand and increase supply. Meanwhile, the government has also raise fuel prices, including gasoline, kerosene and diesel”.
He noted, “Inflationary pressures will reach a peak during the first half of 2017. Moreover, the CBE’s core inflation will reach its highest levels during the first half of 2017, recording 25-30%, which will contribute to expected partial devaluation of the Egyptian pound in the official market; however, its greatest impact will be higher prices of energy and higher corporate taxes”.
Ahmed Shiha, Chairman of the Importers Division at the Federation of Egyptian Chambers of Commerce, said, “The implications of flotation decision on commodities will be soon realized given the fact that the customs applies different accounting methods and Egypt imports more than 90% of what it consumes”.
The Egyptian Customs Authority declared it has determined new USD dollar rate for the customs based on the CBE’s new instructions to liberalize exchange rate.
Mohammad Suleiman, a member of Vehicle Division at Cairo Chamber of Commerce, said, “Car prices will hit a record high over the upcoming period, particularly following application of the customs dollar exchange rate.
Suleiman added, “Car prices as well as automotive industry itself has deteriorated during the last period because of the market’s foreign currency crisis”.
For his part, Dr. Sherif Delawar, professor of economics at the American University in Cairo, stressed the need to reduce customs dollar exchange rate for all goods and keep it steady at its previous price, before Egyptian exchange rate liberalization, which is 8.88 pounds for at least a year.
