Prices in Egypt: What is the reason behind the continuous rise in the country?

We decided to bake a cake at the beginning of last February, and to achieve this, we identified five basic food ingredients for making cakes:

Eggs – milk – oil – sugar – flour

We monitored the prices of the five commodities from February 7 to March 1 in five grocery stores in the Egyptian capital, Cairo, in areas with different social levels in Cairo.

Over the course of about a month, we observed the following.

Four out of five components rose in price, while the price of one component stabilized. The increases were as follows:

Sugar: Its price increased by 100% in less than one week, and at the end of February, which coincided with the advent of the month of Ramadan, we also noticed a severe shortage in the supply of sugar.

the milk: Its price increased by 55%

the oil: Its price increased by between 30% and 40%.

eggs: Its price increased by 40%

Flour: The only component whose price has stabilized

Consequently, the cost of ingredients for preparing an average cake rose from about 330 Egyptian pounds (6.69 US dollars) until it reached 400 Egyptian pounds (8.11 US dollars), an increase of 20% in a period not exceeding a month.

Inflation is the rate of increase in the prices of goods and services over a specific period. The Egyptian government says that the inflation rate rose again last February after slowing recently, recording 36% on an annual basis, driven by a rise in food prices of more than 45%.

Official inflation reports are often questioned about their accuracy, especially with increasing talk that the large and rapid increase in prices is not realistically translated into these reports.

Medhat Nafie, professor of economics and finance at Cairo University, believes that the real inflation rate in Egypt exceeds 50%, which is known as a state of “hyperinflation.”

He added: “The momentary rise in prices is normal in light of hyperinflation, which is an out-of-control rise in prices.”

The reason for this situation is due to several factors, according to Nafi, most notably the shortage of the dollar, which led to a significant increase in its price.

Egypt suffers from a severe shortage in the availability of hard currency (the dollar) due to the decline in Egypt’s main foreign exchange revenues, most notably; Tourism, remittances from Egyptians abroad, and recently revenues from the Suez Canal after Houthi attacks on ships in the Red Sea.

Before liberalizing the local currency exchange rate on March 6, the Central Bank of Egypt maintained the official exchange rate for the dollar at 31 pounds for months, while its price rose in the parallel market to exceed 70 pounds, which is the market that merchants rely on to obtain the dollar needed to import food supplies. .

Commodity prices are either determined by the state forcefully, as the Egyptian government does in medicine, for example, or in the case of a free economy, they are determined by other factors, primarily supply and demand, the cost of production, transportation and storage requirements, and finally the dollar.

The dollar is used to import many foodstuffs from abroad, and even locally manufactured items are affected by the dollar. Egypt imports food and agricultural crops worth about $17 billion annually, equal to 21% of Egypt’s total imports from abroad.

Eggs, milk, and poultry products are produced locally, but they require feed that Egypt imports from abroad.

Oil is also made locally, but it requires oilseeds, most of which Egypt imports from abroad in dollars.

As well as flour made from wheat, which Egypt imports from abroad in dollars.

In addition to many foodstuffs that require dollars during their production stages, and the cost of petroleum products that are used in transportation and storage.

As the number of merchants working in a sector increases, the merchants tend to reduce the profit percentage, and as the number decreases and the monopoly increases, the merchants raise the profit percentage, but in most cases it should not rise above 10% of the final price of the commodity, which may contradict what is happening on the market. Ground.

Mohammed Al-Masry, Vice President of the Federation of Chambers of Commerce, says that the “state of chaos” created by the existence of two prices for the dollar, official and parallel, is what made some believe that merchants are the cause of the crisis.

“There are merchants who obtain the dollar at the official price of about 31 pounds, and sell it at a lower price, while there is another merchant who obtained the dollar from the parallel market, at a price of 60 pounds, so he sells at a higher price. In the end, merchants cannot be held accountable unless the dollar exchange rate stabilizes.” “.

Some people blame merchants for the continuous rise in prices and are accused of exploiting the state of “chaos and lack of control” in the Egyptian market to raise prices unfairly, which is confirmed by Dr. Medhat Nafea, professor of economics and finance at Cairo University, partly.

“I do not absolve merchants from responsibility, but the greatest blame falls on the government, as it is responsible for providing foreign exchange or dollars to merchants, then monitoring and developing policies that prevent monopoly and control of the market.”

The Egyptian government resorted to applying indicative prices for some commodities, such as rice, milk, sugar, and pasta, to try to control prices. It also granted judicial authority to members of the Egyptian army to arrest merchants violating food supplies and bring them to military trial.

Nafi believes that the solutions that the government resorted to to solve the price crisis, even its decision to liberalize the exchange rate of the pound, are temporary solutions and will not work, and what is required is a radical solution to the crisis.

“When government outlets offer goods at lower prices than those offered in the market, citizens rush to buy them until the quantity runs out, then prices rise again.”

Even resorting to the security solution of arresting merchants on charges of “storing food supplies,” as Nafie says, will only lead to more merchants refraining from offering goods and thus raising prices.

The Egyptian government has begun to take several measures to provide the dollar in the Egyptian market, which will hopefully reduce prices.

These measures included direct financing in dollars from abroad, through huge investment deals, such as the deal for the coastal city of Ras El Hekma on the Mediterranean, which is scheduled to bring $35 billion into the Egyptian market.

Egypt also agreed to expand the value of its loan from the International Monetary Fund to reach $8 billion, as part of an aid package of about $20 billion from international institutions, including the European Union and Japan.

Egypt has already begun using those funds to release customs goods worth $2 billion that were held at ports due to a shortage of hard currency, and the government has given priority to strategic goods.

Then, on March 6, the most important step came by liberalizing the official exchange rate of the Egyptian pound against the dollar, according to market mechanisms, according to the government decision, to reach about 49 pounds per dollar.

All of these measures did not have a clear impact on prices until the 10th of March, as the cost of the cake ingredients still ranged at 400 Egyptian pounds. Rather, that cost rose to 427 due to the large shortage in the supply of sugar and the necessity to search for more expensive alternatives to it.