Egypt faces economic meltdown as it records its highest-ever inflation rate since 1958

• Egypt’s inflation hits a record high of 35.7% in June 2023, the highest since 1958 when keeping records began. 
• Economic difficulties persist as Egypt’s inflation soars to historic levels with skyrocketing food prices in June vs May(65.9% vs 60%).
• Since March 2022, Egypt has faced a foreign currency shortage and recurrent devaluations, which have led to price increases and made life more difficult for many Egyptians, whose living standards have fallen recently. 

According to official statistics released on Monday, Egypt’s year-over-year headline inflation increased to a record 35.7% in June from 32.7% in May, exceeding the previous peak set in 2017 and highlighting the severe economic difficulties that have existed since early last year.

According to Trade Economics a platform that provides economic data on 196 countries, “the annual urban inflation rate in Egypt further increased to 35.7% in June 2023, up from 32.7% in the previous month and still well above the upper limit of the central bank’s 5-9% target range. It was the sharpest inflation rate since records began in 1958, driven by a low base effect and ongoing challenges with skyrocketing food prices (65.9% vs 60% in May), further exacerbated by the Muslim feast holiday and increased summer spending.”

Since March 2022, Egypt has faced a foreign currency shortage and recurrent devaluations, which have led to price increases and made life more difficult for many Egyptians, whose living standards have fallen recently. Citing an unfavorable base effect and a rise in consumer demand due to the yearly Eid al-Adha festival, analysts had predicted the record figure for annual urban consumer price inflation in June.

The Egyptian central bank may come under more pressure to hike interest rates at its upcoming meeting on August 3 due to the ongoing rise in inflation. After hiking rates by a total of 1,000 basis points since March 2022, the bank kept them at the same level in its most recent two sessions.

The government has delayed raising energy rates in an effort to lessen the impact of inflation, but this might intensify price pressures over the summer.

Egypt, one of Africa’s most popular regions, depreciated its currency by over half since March 2022 as a result of the ongoing conflict between Russia and Ukraine. This move exposed some of the lapses in its economy and forced it to request aid from the IMF under a $3 billion loan agreement.

Much like Ghana, which has also requested a $3 billion IMF loan, the program’s initial review has been postponed due to a lack of confidence in Egypt’s promise to adopt a flexible currency rate. However, unlike Egypt, Ghana’s request has been approved with the West African country receiving an initial disbursement of $600 million.

Eight months after Egypt’s currency was depreciated by half as part of an earlier IMF agreement, the headline inflation record of 32.95% was attained in July 2017.