Egypt inflation climbs on surging food prices

AP News
Posted: May 10, 2011 10:09 AM
Egypt inflation climbs on surging food prices

Egypt's annual urban inflation rate surged past 12 percent in April, pulled higher by spiking food prices, the government's statistical agency said Tuesday. The figures showed that some of the key catalysts that sparked the uprising that ousted former President Hosni Mubarak remain firmly in place.

Annual urban inflation climbed to 12.1 percent in April compared to 11.5 percent in March, the Central Agency for Public Mobilization and Statistics said on its website. Food prices were up 20.7 percent in April across the country, compared to the same month last year, it said.

Surging food prices were among the litany of woes about which Egyptians had complained over the past couple of years, and were widely seen as a key trigger for the mass uprisings that ousted Mubarak in February after nearly three weeks of protests.

Since then, the country's economy has been hard hit, with key revenue sources like tourism and foreign direct investment hammered, while persistent labor unrest has quashed productivity. Economic growth forecasts for fiscal 2010-2011, ending in June, have been slashed to between 2 and 3 percent from the pre-crisis forecasts of around 6 percent.

The increasing inflation rate is "not demand driven, because obviously demand is dropping, and has been, since the second half of the fiscal year ... while prices have continued to climb," said John Sfakianakis, chief economist with the Riyadh, Saudi Arabia-based Banque Saudi-Fransi.

He said the increase in inflation and prices was based on a combination of factors, including declining output that has created supply disruptions, as well as a depreciation in the value of the Egyptian pound that adds to the import bill.

The Central Bank on April 28 kept its overnight deposit rate and lending rate unchanged, looking simultaneously to support growth while avoiding stimulating inflation.

Sfakianakis said that even a rate increase by the Central Bank would be unlikely to bring food prices down. Inflationary pressures could remain strong given that Egypt is dependent on imports for about half of its domestic food consumption, and food prices account for about 44 percent of the inflation basket.

"For the rest of the year, ... the likelihood of a bit more pressure on prices is quite possible," he said.

Mideast investment bank Beltone Financial said in a note that the inflation figures surpassed its forecast of 11.8 percent

Niveen El Shafei, vice chairman of the General Authority for Investment and Free Zones, told The Associated Press on the sidelines of a gas conference Tuesday that increasing inflation and unemployment, along with the widening of the fiscal deficit, are among the most pressing risks for Egypt at present.

El Shafei also said that the government was projecting foreign direct investments of just $3 billion to $4 billion for the fiscal year ending in June, a sharp decline in earlier projections of around $7 billion for the fiscal year.

"We've had to revise our targets," she said, adding that Egypt will likely "have to do the same with 2012."

"It's going to be a challenge," El Shafei said, since a number of the countries in the region grappling with unrest or uprisings are "potential FDI investors."

Egyptian officials have gone to great lengths to allay investor concerns about the country's commitment to honoring contracts amid an outcry in the press and lawsuits challenging land deals that critics said awarded massive plots of land to developers at cut-rate prices.

Anwal United Trading Co., the Saudi firm that bought a 90 percent stake in Egyptian department store Omar Effendi at the height of the country's privatization program in 2006, saw its contract scrapped by a Cairo administrative court last week. The chain, which was founded about 150 years ago, was privatized around 2006, with Anwal paying almost 600 million pounds ($101 million) for its stake.

On Tuesday, Jameel Al Qanbeet, Anwal's board chairman, said the company would appeal the ruling in Egyptian and international courts.

Al Qanbeet was quoted on the website of the Saudi daily, Al Ektisadiyah, as saying that he would first appeal to the Egyptian and Saudi governments to solve the dispute and that whoever wants the department store chain should pay them 1.3 billion Egyptian pounds ($219 million).

Such developments have done little to bolster investor confidence at a time when Egypt faces a host of other challenges, including depreciation pressures on the pound and a sharp drop in the country's net international reserves since January.

Finance Minister Samir Radwan is heading to the Gulf to try to attract investor interest from the oil-rich region in Egypt's infrastructure projects _ ventures seen as key to creating new jobs and opportunities.