Ahmed Kamel – Egypt Daily News
A decline in Egypt’s inflation rate does not mean that household expenses have returned to their earlier levels. Prices continue to rise, although more slowly than during the peak of the country’s recent inflation crisis, leaving many families with incomes that buy far less than they did years ago.
That distinction was highlighted by economist Alia El-Mahdy, the former dean of Cairo University’s Faculty of Economics and Political Science. In televised remarks, she argued that the effect of inflation on living standards should be assessed through purchasing power, wages and household consumption rather than through financial indicators alone.
El-Mahdy estimated that the purchasing power of 100 Egyptian pounds in 2010 had fallen to the equivalent of approximately 12.70 pounds today. Her calculation implies an 87% reduction in the amount of goods and services that the currency can buy. She also referred to a cumulative increase in prices of about 670%.
The figures describe purchasing power rather than the official exchange rate. They indicate how much prices have changed inside Egypt over time. A currency can continue to circulate at its stated face value while losing purchasing power because the prices of food, housing, transport and other necessities increase.
Egypt has experienced several major economic shocks since 2010. The country’s 2011 political upheaval weakened tourism, investment and foreign-exchange earnings. In 2016, the government allowed the pound to float as part of an economic reform programme supported by the International Monetary Fund. The measure was accompanied by a sharp depreciation of the currency and a rapid increase in consumer prices.
Further pressure emerged after the coronavirus pandemic and the global disruption caused by Russia’s invasion of Ukraine. Egypt depends on imports for a significant share of its food, fuel-related products, industrial inputs and other essential goods. Higher international prices therefore placed pressure on both consumers and the country’s foreign-currency position.
The situation deteriorated again in 2022, when rising global interest rates and concerns about emerging-market debt led foreign investors to withdraw funds from Egyptian government debt. The resulting shortage of foreign currency contributed to pressure on the pound. The currency was devalued several times in 2022 and 2023, followed by a move toward a more flexible exchange-rate system in March 2024.
Currency depreciation increases the local cost of imported goods and production inputs. Even products made inside Egypt may become more expensive if manufacturers rely on imported machinery, raw materials, packaging or components. Businesses then face a choice between absorbing higher costs, reducing production or passing the increases on to consumers.
Inflation reached some of its highest recorded levels during 2023. Egypt’s annual urban inflation rate rose to 38.2% in July and 39.7% in August that year, according to data from the Central Agency for Public Mobilization and Statistics. Food and beverage prices increased even more rapidly, with annual growth reaching 71.9% in August.
The annual inflation rate later fell, but this did not reverse the earlier increases. If inflation falls from 30% to 15%, prices are still rising; they are simply rising at a slower rate. A household that has already adjusted to much higher food and transport costs does not receive an automatic benefit when the inflation rate declines.
This difference is particularly important for workers on fixed or slowly adjusted incomes. Salary increases may arrive months after prices have risen, while informal workers and low-income households may have little protection against sudden increases in essential expenses. Savings held in cash also lose real value when inflation remains above the return earned on those savings.
El-Mahdy criticised what she described as an excessive focus on fiscal and monetary measures in IMF-supported reform programmes. Such measures can address budget deficits, foreign-exchange shortages and monetary instability, but she argued that they do not automatically create enough jobs, increase domestic production or raise real wages.
The economist said a sustainable recovery would require greater attention to employment, savings, private investment and productive capacity. These factors determine whether economic growth improves living standards rather than simply stabilising financial accounts.
Poverty remains a central concern. Egypt’s national statistics agency reported a poverty rate of 33.5% based on its 2021 household-income survey. El-Mahdy said the figure could have increased after 2022 because households subsequently faced severe inflation and currency depreciation. A new official survey would be required to establish the current poverty rate.
Recent data show that inflation remains high despite its decline from the 2023 peak. Annual urban inflation was reported at 14.5% in August, following a rate of 14.9% in July. The figures represent a slowdown in the pace of price increases, not a reduction in the prices already paid by consumers.
For Egyptian households, the central economic question is therefore whether incomes can recover faster than living costs. Until wages, savings and employment opportunities regain ground, a lower inflation rate alone will not restore the purchasing power lost over the past decade.
