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Inflation in urban parts of Egypt accelerated to its fastest pace in more than five years as last month's steep currency devaluation heaped more pressures on consumers in the Middle East's most populous nation.
The index climbed 25.8% year-on-year in January versus 21.3% the previous month, the state-run statistics agency CAPMAS said Thursday. The increase was driven by a 48% surge in food and beverage prices, the largest single component of the inflation basket.
On a monthly basis, inflation was 4.7%, the quickest since 2016.
The surge was widely expected after the pound plunged roughly 18% last month alone. The currency has lost almost half its value against the US dollar since March 2022.
It was the latest sign Egypt is gradually shifting to a flexible exchange rate, a move that helped authorities secure a $3 billion International Monetary Fund deal for an economy battered by higher food and fuel import bills stemming from Russia's invasion of Ukraine.
Thursday's figures may encourage the central bank to resume a cycle of monetary tightening after a surprise interest-rate hold last week. Policymakers said they were assessing the impact of a combined 800 basis points of rate increases in 2022 on the economy.
Egypt's government says tackling soaring prices for food and other commodities is its top priority for the country where a large proportion lives around or below the poverty line.
The central bank is targeting inflation at an average of 7%, plus or minus 2 percentage points by the fourth quarter of 2024. Its next Monetary Policy Committee meeting is due March 30.
Prices are likely to accelerate further in the short-term, spurred by an expected hike in fuel prices and increased demand during the holy month of Ramadan, which begins at the end of March and is marked by family gatherings and large meals.
The recent surge has meant yields on Egyptian Treasury bills and bonds have turned negative when adjusted to inflation. That's limited the appeal among overseas investors for the local securities at a time when Egypt is seeking an influx of foreign currency.
Moody's Investors Service this week downgraded Egypt's credit rating to B3, pushing it one notch deeper into junk territory. The company warned it would take time to "tangibly reduce" Egypt's vulnerability to external risks such as higher borrowing costs and inflationary pressures.
--With assistance from Tarek El-Tablawy and Abdel Latif Wahba.
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