Inflationary rumblings
While producers, importers, wholesalers, and merchants point at each other as the culprits behind the latest price increase, consumers remain the victims. Mona El-Fiqi reports
Since the government decided to float the Egyptian pound in January, the prices of commodities have been rising in the face of a falling currency, and consumers continue to suffer. A visit to a supermarket reveals a sharp hike in prices, often the cost of an exchange rate liberalisation programme. Many essential consumer goods were more expensive for the third time this year. A packet of tea which previously cost LE0.75, now sells for LE1.10; corn oil jumped from LE5 to LE7 per liter and sugar rose from LE1.75 to LE2.20 a kilo. Rice, LE2 per kilo earlier this year, is up to LE2.30.
"Every time I go to buy our essential food commodities, I find an increase of at least 10 per cent; since February I have been unable to make an accurate budget for my family's monthly expenses because my salary has not been raised yet," said Hoda Ahmed, a working mother of two. Another mother of three said that she has been skimping on personal consumption to shield her children from the effects of the spiraling prices.
With even middle-class families struggling to balance their budgets, the lower classes are in dire straits, threatening a nationwide surge in malnutrition. "Because of the price increase, it has become difficult to afford a meal of chicken and vegetables for my four children," said Sabah Mohamed.
The repeated price increases since January, particularly among essential consumer goods, that are obvious from anecdotal evidence, have been confirmed by government research. A study recently issued by the Central Agency for Public Mobilisation and Statistics reported that the foodstuff sector saw a six per cent increase in prices. The agency explained that food industry dependency on imported machinery and components necessitated the increase. With the Egyptian pound in an irregular decline against major foreign currencies such as the dollar and euro, imports have become accordingly more expensive for those holding Egyptian currency.
Upset consumers are wondering who is responsible for the price markups, whether importers, producers, wholesalers or traders. Traders and wholesalers claim that factory prices increased and they had to raise their own prices to cover their expenses, including transportation fees, electricity bills, workers' salaries and taxes. Samir Hamed, an owner of a supermarket at Nasr City, explained that the factory price of a product dictates a product's final price since traders calculated a fixed percentage profit margin on top of the factory price to cover the shops' expenses. "For example, the Holding Company for Food Industries sells sugar to traders at LE1.7 per kilo and I sell it at LE2, which is a reasonable margin," said Hamid.
Due to the devaluation of the Egyptian pound, the prices of imports increased by 20 to 30 per cent, a figure that represents the increase of the exchange rate of the pound against the dollar.
In response to this increase and in an attempt to control the markets and maintain stability, the Ministry of Supply and Internal Trade reached a compromise with the Federation of Egyptian Chambers of Commerce (FECC) and the Federation of Egyptian Industries (FEI) in April. By the terms of the accord, traders and producers agreed to sell 15 essential food commodities such as sugar, tea and rice at a previously determined fixed price to thwart an inflationary cycle. However, since the fixed price list was not obligatory for all merchants, some of them refused to abide by it.
"I cannot sell a kilo of sugar at LE1.75, which is the price set by the government's deal with the FEI and the FECC, if I buy it from the producing company at LE1.70 per kilo," insisted a supermarket owner who preferred anonymity.
At the same time as traders placed responsibility on factories for the price increase, food industry producers say that the devaluation of the pound and high international prices of certain imports required for manufacturing local food products is to blame for high prices.
Safwan Thabet, chairman of the chamber of food industries at the FEI said that local companies must be responsive to the international prices of some goods such as cooking oil and sesame. Thabet cited the situation of cooking oil, where international prices are up a hefty 60 per cent while imported cooking oil represents 92 per cent of national consumption.
With internal policies as well as the international market affecting prices, Thabet argued that the factories could not reasonably have avoided increasing prices. According to Thabet, the Ministry of Agriculture obliged the factories to pay 16 per cent more for dairy products, a phased increase completed on 1 June.
The importers admit that the rise of the imports bill due to the devaluation of the pound led to the increase of more than 50 per cent in the prices of local manufactured products that depend on imported components.
Imported raw materials are more expensive not only because of the pound's devaluation, but also because the customs duties on these items have to be paid in hard currency.
Mustafa Zaki, chairman of the importers' division at the FECC said that the exchange rate of the pound against the dollar had four precipitous drops since the new exchange rate policy was announced in January. He pointed out that each time the pound declines in value, importers have to pay the customs duties on imports according to the new rate. "The dollar exchange rate rose from LE4.6 to LE5.5 to LE5.7 to LE5.9 and this definitely reflected on the final price of products," Zaki said.
Analysts say that the increase of prices is one of the negative results of the government's decision to follow the recommendations of the World Bank and the International Monetary Fund to devalue the Egyptian pound. The goal of the devaluation is for the pound to reflect its real market value against foreign currencies and help hasten the economic reform programme. According to analysts, this price increase is squeezing middle and lower-class families whose salaries have not been raised to meet the increase in prices.
To help less well-off families cope with economic liberalisation, the Ministry of Supply and Internal Trade decided to establish more than 3,000 outlets in many governorates to provide essential food commodities at reasonable prices. However, in some governorates like Gharbiya, consumers complain that no locations have even been set aside for the outlets, while in other areas the outlets are located well away from residential neighbourhoods.
But price increases are also aggravated by some local factors, such as the hoarding practices of some large wholesalers who buy large quantities of a product to reduce its supply on the market then sell their stock at inflated prices to reap high profits. Zaki said that such monopolistic acts have raised the price of rice.
Another common practice is a wave of price markups at the beginning of July, as merchants finance an annual wage increase for their employees. El-Sayed Abdeen, chairman of the grocery division at the FECC, describes these traders as greedy. Zaki suggests that the government should play a more effective role in supervising the market to check price gouging by merchants who raise prices without legitimate cause, explaining that the issuing of consumer protection and anti-trust laws could help the matter.
Moreover, some argue that the government should raise civil service and public sector employees' salaries by at least 15 per cent, to help them keep up with inflation. The government's 10 per cent raise, emphasised Zaki, would be inadequate for a middle-class family to retain the same purchasing power as before the price increases.
