Egypt inflation jumps as currency slides, hurting poor

CAIRO (Reuters) - Egyptian inflation has leapt as a sliding local currency pushes up food prices, badly hurting the poor who are suffering most during the country's economic, political and security crisis.

Illustrating the squeeze on living standards since Egypt's 2011 revolution, data on Sunday showed prices in towns and cities rose 8.2 percent in the year to February, sharply higher than the 6.3 percent the previous month.

Economists blamed turmoil on Egypt's streets and in politics which has undermined economic confidence and pushed the Egyptian pound lower, inflating the cost of imported food.

On Saturday alone, protesters torched buildings and two people died in Cairo in pitched battles with police, a force widely hated for its brutality during the rule of Hosni Mubarak and still unreformed two years after his overthrow.

EFG-Hermes economist Mohamed Abu Basha said inflation may accelerate yet further as the Islamist government of President Mohamed Mursi struggles with the wave of violent protests and chaos in the election process.

"It could rise more given the ongoing unrest and huge losses in the value of the Egyptian pound of around 10 percent ... since the start of the year," he told Reuters.

Abu Basha also cited higher prices of low-octane fuel used by bakeries and trucks that deliver goods "which usually have a direct impact on the prices of food and other products".

February's month-on-month inflation rate also leapt to 2.5 percent from 1.7 the previous month, the CAPMAS statistics agency reported on its website.

Prices of food and drink - which swallows up much of poor Egyptians' incomes - rose 9.3 percent year-on-year last month, The central bank later released its own inflation measure showing a similar acceleration.

Even better off Egyptians earning around 1,000 pounds a month are feeling the pinch. Government employee Mahmoud Hosni said he had noticed how the cost of sugar, food oils and transport was rising.

"Most of the basic goods have gone up," Hosni, 31, said as he queued to buy bean and falafel flatbread sandwiches, a typical Egyptian lunch. "If you earn 1,000 pounds, for example, and then something goes up 10 pounds and your salary hasn't changed, of course it's going to affect you."

Saturday's violence had its immediate roots in a soccer riot two years ago when more than 70 fans died. Supporters of Cairo team Al-Ahly went on the rampage after a court jailed two policemen but acquitted seven others whom the fans blame for the deaths at an away match in Port Said.

ACUTE STRESS

Other unrest in recent months has erupted over grievances ranging from Mursi's decree last year temporarily awarding himself sweeping powers to attempts at clearing protesters from Cairo's Tahrir Square, centre of the 2011 popular uprising.

But underlying all this is the acute stress many Egyptians are under as they try to make ends meet.

"A lot of people are having difficulties, problems are increasing. Traders are getting scared," said a 50-year-old employee of a religious travel firm who gave her name only as Sabah.

Waiting to buy meat in downtown Cairo, Sabah said at least prices of some food items such as small flatbread loaves were stable thanks to state subsidies, easing the burden on the poor.

However, the falling pound has also pushed up the government's subsidy bill as it has to buy large amounts of wheat on international markets for dollars to feed the poor.

With its dollar reserves falling to critically low levels, the government wants to reopen stalled negotiations for a $4.8 billion loan from the International Monetary Fund.

A deal seems elusive as analysts believe the IMF will be unwilling to lend to Egypt during feuding between the ruling Islamists and opposition, on top of deep uncertainty over when parliamentary elections will be held. Mursi called the lower house polls last month, only for a court to cancel his decree.

The IMF is likely to demand reform of the subsidy system which is pushing the budget deficit to unmanageable levels. It will probably target energy subsidies, which suck much larger sums from the state budget than food, but higher fuel costs would still feed through into general inflation.

At the official rate of about 6.7 pounds to the dollar, the local currency has fallen 8.4 percent since late December, when the central bank began auctioning foreign currency.

But smaller and medium-sized private businesses find it nearly impossible to obtain dollars at the official rate as the central bank tightly rations currency at the auctions.

One banker told Reuters he had had to buy dollars for a business client on the black market at 7.25 pounds to the dollar - a full 15 percent weaker than last December's official rate.

Many Egyptians blame Mursi for their difficulties, but government employee Hosni had no hankering for the Mubarak era. "This is a natural thing. After a revolution there has to be a stage where things are unbalanced like this," he said.

Source: http://news.yahoo.com/egypts-urban-inflation-jumps-due-pounds-slide-080408689--business.html

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