Understanding inflation is important because it impacts many economic aspects, from consumer spending to investment returns. Since consumer prices are expected to rise by a certain percentage over the next year, you will soon pay more for housing and food products.
The concept of inflation is that the prices of goods and services increase over time, which reduces the value of a currency. Let us say you saved $7 in your wallet and wanted to buy milk. If you decide to buy it now and its price is $3.50, you can buy two gallons of milk. However, if you save the $7 in your wallet and use it to buy milk later, it may not cost $3.50 anymore. Alternatively, it may cost $3.80, allowing you to buy just one gallon of milk. This means that your purchasing power has decreased due to inflation.
As a consumer, you participate in the economic cycle, and knowing the fundamentals of inflation is essential for understanding how cost-of-living fluctuations affect your money over time.
Price changes due to inflation can occur in every industry at any time. Inflation is usually caused by increased production costs or increased demand. Price fluctuations can occur for various reasons, such as overprinting of the currency, when there is more demand for goods and services than the economy can produce, and when the costs of producing goods and services increase. This also drives up the cost of such products and services. Sometimes, workers expect their salaries to increase to maintain their cost of living due to the high prices of goods and services. These workers constantly expect prices to rise and demand higher wages, which contributes to higher prices of goods and services.
The United States Bureau of Labor Statistics issues the CPI assesses changes in the cost of living over time. The price of each item – such as milk, eggs, energy, clothing, transportation, and medical expenses – is calculated monthly. The CPI is then calculated by dividing the price of the market basket in a given year by the cost of the same basket in the base year.
In Egypt, The CBE revealed that the annual rate of core inflation rose to 21.5% last November, compared to 19% during the previous October.
The CBE explained that the core consumer price index recorded a monthly rate of 2.7% in November, compared to a monthly rate of 0.5% in November of the previous year and a monthly rate of 2% last October.
Data from the Central Agency for Public Mobilization and Statistics (CAPMAS) revealed that the CPI in Egyptian cities was recorded at 18.7% in November, compared to 16.2% in October.
After further analysis, the increase in the inflation rate was attributed to higher bread and cereal prices and is likely to lead to a short-term increase in the poverty rate from 2% – 3.8%. An analysis of the role of the compensatory measures announced by the government in 2022 found that these measures would partially mitigate the increase in the poverty rate by about 0.4 percentage points.
There is no maximum or minimum in inflation behavior, as it is considered an upward or downward trend. This is how the charts of the economic figures are read. However, compared to what happened in Egypt in 2016, where inflation reached 30% after the exchange rate liberalization, inflation can be controlled and did not reach a peak where the index fell to 5% in 2020. The inflation rate in 2022 reached high levels of about 21.3%, according to the estimates of the CBE, divided as follows: +13.6% for the healthcare sector, +6.7% for the utility sector, 37.9% for food and beverages, 7.7% for the education sector, and finally 17.3% for public and private transportation.
This is not the peak point. Egypt is able during the coming period to limit the rise in inflation, which also contributed to its height in the behavior of traders by raising the prices of their goods without taking into account any aspects, whether legal or social. This requires preventing the monopoly of basic or strategic supplies to avoid further price increases, especially goods imported before the Russian-Ukrainian war crisis.
It is likely that Egypt will succeed in controlling the inflation rate during Q1 2023 at the latest through the measures of the Central Bank, which had previously faced an inflation rate higher than the current rate following the decision to liberalize the exchange rate of the pound in November 2016, and succeeded at that time in controlling inflation, by raising the interest rate in banks on investment certificates.
Economic analysis depends primarily on reading, analyzing and understanding human behavior to overcome crises and project them on behavior at the present time (similar crisis). Based on this, we can say that we have not reached the peak of inflation in Egypt like 2016, but we have reached levels close to it, and we can limit the disaster as soon as possible.
