Egypt inflation soars to 5-1/2-year high, core inflation at record

Discount markets pop-up across Egypt amid financial struggle
People buy fruits from a market selling food at discounted prices, after a devaluation of the Egyptian pound led to a sharp increase in prices, in Giza, Egypt, January 28, 2023. REUTERS/Hanaa Habib

CAIRO, March 9 (Reuters) - Egypt's official annual headline inflation rate leapt in February to a higher-than-expected 31.9%, its highest in five and a half years, while core inflation skyrocketed to a record 40.26%, according to official data published on Thursday.

The soaring inflation follows a series of currency devaluations starting in March 2022, a prolonged shortage of foreign currency and a continuing backlog of getting imports out of ports.

It highlights the extent of economic pressures that have built since early last year and will renew pressure on the central bank's Monetary Policy Committee, scheduled to meet on March 30, to raise interest rates.

Annual urban consumer inflation was the highest since August 2017, nine months after another steep devaluation when it reached 31.92%. It has been climbing steadily for more than a year, reaching 25.8% in January, according it data from statistics agency CAPMAS.

Economists had expected a reading of 26.7%, according to the median forecast in a Reuters poll of 14.

February's figure for core inflation, which strips out volatile items such as food, is the highest since the central bank began publishing the data in November 2009. Core inflation stood at 31.2% in January.

Six analysts had forecast February core inflation of 32.85%.

The inflation increase was led by food prices, which rose 14.4% month-on-month and 61.8% year-on-year, Mohamed Abu Basha of EFG Hermes said in a note.

"We see the sharp rise in food prices as a reflection of supply shortages as well as speculative activities by traders rather than being purely an impact of a weakening EGP," he wrote. Poultry prices in particular rose by 37.7% month on month.

Some analysts estimate that actual inflation may be even higher, because the basket of goods and services used to measure price changes is skewed towards subsidised or fixed-priced items.

At its last meeting on Feb. 2, the central bank kept its lending rate at 17.25% and the deposit rate at 16.25%, saying its hikes of 800 basis points over the last year should help to tame inflation.

The Egyptian pound has fallen by nearly 50% since March.

Writing by Tala Ramadan in Dubai and Patrick Werr in Cairo; editing by Tom Hogue, Jason Neely and Tomasz Janowski

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