Egypt’s massive inflation rate: country is facing highest rate in over three decades

EGP forex traders witness massive inflation

State statistics agency Central Agency for Public Monetization and Statistics (CAPMAS) has released data on the astronomical inflation rates in Egypt. The annual rate of 30.25 recorded in February is the highest in over thirty years, and sees an increase in the cost of consumer goods. The highest price increases have been seen on food and beverages, at 29.3%, however unofficial sources put the actual price hikes at closer to 90%. Poultry increased in the month of February 2017 by a rate of 10.84%, showcasing how staple goods are rising in price steadily.

Egypt has a high population growth rate of 1.6% annually. This is much higher than countries such as China (0.5%) and the United States of America (0.7%), and when coupled with slow economic growth brings concern for the financial stability of the country. With a high growth rate of population, more young adults will be entering the workforce facing fierce competition by their peers. Population growth is even more concentrated in the cities of Cairo and Alexandria, which includes poor, densely populated areas.

What has caused the increase in inflation? While there are many factors, one of the main reasons is that the Egyptian pound was anchored to the USD until November 3rd. It saw a sharp decline immediately after it became unanchored.

Five year graph: EGP to USD (courtesy of google finance)

EGP to USD graph over time forex

Five year graph: EGP to GPB  (courtesy of google finance)

EGP GPD forex

An economy that has faced unique challenges

Government upheaval and terrorist attacks have hurt the tourism industry of Egypt. While the economy still exports petroleum and crude oil, the export market does face fluctuations in international oil prices. If the OPEC restrictions continue, oil prices will stay higher, but at any point the export restrictions could lift and the price could bottom out which would affect the EGP.

It is difficult for UK forex investors to trade in GBP, with many forex brokers unable to offer the currency pairing.

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