Despite dropping inflation rates, prices continue to spiral, with government measures to contain inflation largely unfelt by most.
CAIRO - 13 June 2018: After two years of listening to officials and the media reassuring them about gradual improvements in prices after the recent austerity measures, the average Egyptian maintains that none of the improvements in financial figures seem to have any concrete effects on their daily lives.
After the currency float in November 2016, the US dollar to Egyptian Pound rate jumped from LE 8.8 to LE 19, witnessing a 32% devaluation. This, coupled with energy subsidy cuts, led to inflation reaching 35.5% and prices almost doubling overnight.
But over the past few months, Egypt reached the lowest budget deficit in 10 years; foreign reserves hit a record helped by international bond sale and the inflation rate down to 13%.
This news was meant to give a good sign that Egypt’s economic plan is on the right track; however, it left ordinary citizens wondering why neither their incomes nor the costs they incur seem to be affected by the economic improvements witnessed over the past few months. For the average citizens, good news would be household commodities and food items returning to preflotation prices, or at least seeing a reduction in prices.
The average citizen has been affected drastically by the rising prices of basic commodities, which jumped 38.6% in January, up from 29.3% in December, according to the Consumer Price Index (CPI). With some 27.8% of Egyptians living below the poverty line—LE 700-800 monthly per person, in fiscal year 2017/2018—the government has aimed to increase the number of beneficiaries of the food subsidy system to 71 million, and those of the bread subsidy system to 76.8 million, to mitigate the effect of the rising prices.
A testament to the increasing prices this Ramadan are the Ramadan bags, which contain essential goods and are distributed to poorer families. For four years, Eman, a 53-year-old mother, has been packing Ramadan bags to give away. Two years ago, she used to pack 100 bags for less than LE 2,000, but now, she cannot do more than 50 bags, costing her just over LE 3,000. She complains about the quality of the bags that now cost LE 90 and include very low-quantity essential items “that barely suffice a family of four for less than a week.”
Prices of Ramadan bag before and after inflation - Infographics by Mohamed Zain/Egypt Today
Feeling the crunch, but shopping anyway
With quick footsteps, Suzan, who is single and lives with her family, pushes a shopping cart, moving forward across the aisles, where plenty of colorful decorations welcome shoppers to the yameesh (Ramadan traditional nuts and dry fruits) and nuts sections at a supermarket in Mohandiseen. The 37-year-old computer engineer who comes from a middle-class background is wandering around, looking for promotions on wipes, diapers and tissues. Her monthly shopping list had once rolled on and on, but after the post-float price hikes, it has been drastically shrunk. “I used to buy imported cheese for LE 35 [$1.9], but I stopped now after the price was raised to LE 100 [$5.6],” she says.
This year, Ramadan nuts and dry fruits alone have increased in prices between 15-20%.
Suzan usually buys items on promotion from the supermarket that is kilometers away from her work. Two years ago, she used to buy her nephew’s diapers each month for LE 85; now, they cost her LE 125 during promotion periods. “The same hike goes for other stuff like medicines, toothpaste and things that are irreplaceable in our daily lives,” she explains. Following up on news about economic progress and the drop in the inflation rate, she says, “What is this supposed to mean; prices going down and all? No, I can tell that they are still going up; they are not even stable.”
Woman shopping vegetables and food items from Dokki Souq, Giza - Photo by Khaled Kamel/Egypt Today
Suzan eyes the shelves quickly, then pauses for a moment, pointing at the imported cakes and chocolates shelf, “These have become too expensive for anyone to buy; most people are now making cakes at home instead,” she says, wondering when the austerity measures would come to an end.
Despite consumers arguing that price increases have left certain high-end commodities unpurchased for quite some time, a salesperson in the same Mohandiseen supermarket where Suzan shops disagrees. “People will not stop eating; they are still coming to the supermarket and buying the same items they used to buy…the imported goods are also sold like other items, I do not think the customers’ turnout has been affected at all.”
A view of a major supermarket in Cairo ahead of Ramadan - Photo by Nourhan Magdi/Egypt Today
While customers may be buying, especially during the holy month, this doesn’t mean they don’t feel the crunch. A middle-class citizen in her 30s, Nour complains about the rise in prices. “Ramadan is a special season; we have no choice but to buy all our needs without excluding any items, except for the nuts, which now cost LE 400 per kilogram.”
Many customers now opt for cheaper outlets to shop as the same item would cost higher, sometimes even double, in more affluent districts than poorer ones.
“I receive LE 3,000 pension per month, it rises around LE 50 every year and it does not cover my spending, as the prices go up almost every couple of months…it needs to be doubled to be sufficient,” says Kawthar, a 75-year-old woman who lives in Agouza but usually heads to Dokki souq where food items are cheaper. “This Ramadan I am not buying nuts because they are too expensive,” Kawthar says, echoing Nour’s decision.
Inflation drop: good news?
The Central Bank of Egypt (CBE) attributed the drop in inflation rates to restrictions imposed on real monetary measures and the low prices of basic food commodities. Minister of Finance Amr el-Garhy expected a gradual relief in prices as the base effect of currency flotation begins to wear off.
“The drop in the inflation rate does not mean a drop in the prices,” says economics professor at Ain Shams University Yomn El-Hamaqy, citing a technical calculation of the rate compared to the peak month. “For people’s living standards to improve, this requires a leap in production and import, and consequently an increase in incomes. Only then can we go back to the inflation rate recorded before the flotation. But it is impossible for this to happen now.”
Building on Hamaqy, economics expert Wael el-Nahas explains, “Citizens did not feel a decrease in prices because the effect of the currency flotation is still in place, which can be understood from their unchanged incomes.” He adds that prices continue to increase, not powered by a rise in demand or the purchasing power, but rather “due to higher costs of production factors; which is called cost-push inflation.”
Meat consumption dropped around 10,000 tons alone after the flotation in Egypt - Photo by Khaled Kamel /Egypt Today
“Prices cannot drop unless production exceeds consumption. Our current production is not sufficient for millions of citizens after the importing rate went down, as a result of the devaluation of the Egyptian Pound,” says Sherif Delawar, Professor of Management at the Arab Academy for Science, Technology & Maritime Transport (AASTMT) and former consultant with the United Nations Industrial Development Organization (UNIDO). Delawar explains that Egypt witnessed stagflation after the currency flotation, where unemployment and the price of goods are high, but spending declines. However, the spending and consumption have increased once again, with products flying off shelves quicker than before, argues Delawar.
The average annual consumption of meat reached 1.2 million tons in 2010, while the figure dropped now to around 1.08 million tons, says Head of the Butchers Division at Cairo Chamber of Commerce Mohamed Wahba. “The consumption dropped around 10,000 tons alone after the flotation.” Wahba adds that the reluctance to purchase meat led the price to decrease by 20% in the local market. In 2017, Egypt was ranked among the five cheapest countries, according to the prices of meat, chicken and fish, according to British publisher Caterwings which analyzed the prices compared to the minimum wage and its affordability. The average kilogram of meat price in Egypt was $7.1; chicken was $3.59; $8.22 for white fish; and $28.5 for salmon.
What’s next?
Shawqy, a 56-year-old accountant, says he believes that his living standards will not improve or return to their normal level in the near future. “When prices surge, they never go back down [to their original rates],” he says. To sustain a somewhat similar living standard, he works as a taxi driver in the afternoon. According to the labor law, Shawqy, who has been working in a governmental institution for 30 years and whose monthly salary is still below LE 3,000 ($168), will retire after four years.
Hamaqy affirms that the current situation “is very difficult and requires all state agencies to stand shoulder-to-shoulder by providing job opportunities, raising skills, postponing any other wave of price hike sand applying the inclusive growth concept correctly.”
As Egypt plans to slash fuel subsidies in the fiscal year 2018/19 following the last cut in 2017, a state of anxiety prevails - REUTERS
As Egypt plans to slash fuel subsidies in the fiscal year 2018/19 following the last cut in 2017, a state of anxiety prevails, especially amid dissatisfaction with a recent increase in the metro fare, the then-affordable means of transportation that 3.5 million Cairenes rely on for their daily travel.
Experts urge the government to launch a developmental plan, parallel to the economic reform, that guarantees labor efficiency, targets upgrading education system and provides more job opportunities.
Comments
Leave a Comment