Egypt's Inflation Records Steepest Decline in 15 Yrs

Reducing the rate of inflation and maintaining it within the target range of the Central Bank of Egypt (CBE) is one of the basic objectives of the monetary policy adopted by the state, given its direct implications on the rate of economic growth, the living standard of citizens, and its role in attracting local and foreign investments.

During the past year, and despite the coronavirus pandemic and its negative repercussions on various world economies, Egypt managed to reduce inflation and maintain growth, thanks to the economic reform program.

In this regard, the Cabinet Media Center published a report on Sunday that included infographics highlighting the success of the economic reform program, as the inflation rate during 2020 recorded its best level in 15 years despite the coronavirus crisis.

The report stated that the government succeeded in bringing down the inflation rate to a record level, recording an annual average inflation at 5% in 2020, its lowest rate since 2006.

Egypt's annual inflation rate declined to 5.4% in December of 2020 from 5.7%  in November, mainly due to lower prices of vegetables and other food products. Annual core inflation slowed to 3.8% in December from 4% in November.

Considering 2020 full year, inflation rate averaged 5.1%, down from 8.5% in 2019.

On a monthly basis, consumer prices were down 0.4% in December, the steepest monthly decline since June last year, after increasing 0.8% in the previous month, due to a fall in prices of food and beverages.

The report reviewed the development of the average annual rate of general inflation during the period from 2006 to 2020, indicating that inflation increased significantly after the liberation of the exchange rate recording 29.5% in in 2017, 14.4% in 2018, and 9.2% in 2019.

The inflation rate recorded 13.8% in 2016, 10.1% in 2011, and 7.7% in 2006.

The report stated that the decrease in the average annual rate of general inflation in 2020 is due to the record negative rates of food prices in the last 7 months, as they recorded a drop of 0.7% in October, 2.6% in September, and 4.1% in August, 1.5% in July, 0.7% in May, 1.7% in March, and 0.9% in February.

The report noted that inflation achieved a better rate than the expectations of major international institutions during 2020, as it recorded 5%. The Economist expected inflation to reach 5.6%, while Fitch and Bloomberg expected it to record 5.9%.

In a related context, the World Bank expected inflation to record 9.5%, the International Monetary Fund (IMF) expected it to record 5.9%, and Standard & Poor's expected a 6%.

The World Bank stated that the inflation rate has continued to decline since the beginning of the fiscal year 2019/20, registering an average of 5.7% compared to 19.6% on average during the previous three years.

For its part, the International Monetary Fund confirmed that the government's investments in modernizing agricultural methods and food supply chains have led to a sustainable drop in food prices since October 2019.

The report revealed the country's success in controlling food prices after the sharp and temporary rise in the inflation rate in 2017 due to the start of the economic reform program and the liberalization of the exchange rate, reviewing a number of commodity models whose prices decreased in December 2020 compared to December 2017.