Egypt’s average annual headline urban inflation recorded 5.2% in 2021, compared to 5% in 2020, which was the lowest rate recorded since 2005, according to the Central Bank of Egypt.
However, dynamics within 2021 diverged between the first four months and the rest of the year.
During the first four months of 2021, annual inflation recorded muted rates below 5% due to broadly muted monthly inflation rates — for instance, monthly headline inflation in January 2021 was as low as negative 0.4%, in addition to favourable base effects created by high inflation rates recorded at the onset of the pandemic in early 2020.
After that, annual headline urban inflation was on an upward trend since May 2021 that was only interrupted during October and November 2021. It rose to above 5%, partially reflecting unfavourable base effects resulting from the low inflation levels that were recorded in the second half of 2020, especially in 3Q 2020, when the impact of the COVID-19 outbreak became deflationary, as well as the reversal of a short-lived tomato supply shock witnessed during December 2020.
The pickup also reflects the impact of rising international commodity prices such as Brent prices, which recorded an average of $71.5 per barrel in 2021 compared to an average of $41.6 per barrel in 2020 and led the Automatic Price Indexation Committee to raise the prices of some fuel products in three reviews.
Additionally, several fiscal consolidation measures were announced by the government which included raising electricity prices for households, fees on various governmental paperwork and licenses, Butane gas prices, as well as the price of natural gas for houses, cars, and factories.
Moreover, the Ministry of Agriculture and Land Reclamation of Egypt announced an increase in the prices of subsidised fertilisers, which played a role in increasing the input costs of food production.
While the weight of the food and beverages group declined from 39.9% to 32.7% with the release of the 10th CPI series starting from September 2019, it remains the largest component in the CPI basket.
Starting May 2021, annual food inflation also picked up strongly until the end of the year (except for November 2021), reflecting the increase of international food prices by 28.1% in 2021, compared to an increase of only 3.2% in 2020, according to the United Nations’ Food and Agriculture Organisation and unfavourable base effects resulting from muted prices in 2020, where containment measures have affected domestic inventory levels.
This trend not only reflected the increase in market prices but also reflected their impact on domestic inflation via rising prices of subsidised food items such as edible oil, which witnessed an increase in its prices twice during 2021.
