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Jan 10 2011

Egypt eyes inflation as Algeria, Tunisia are mired in food riots

By Christopher Le Coq CAIRO: As rising food prices spur social unrest in neighboring North African countries, concerns that riots could spillover into Egypt remain mild as inflation is expected to rise.

The Food and Agriculture Organization, a body of the United Nations, said on Jan. 5 that food prices hit a "record high" in December 2010, topping 2008 levels when riots shook Egypt as well as other countries, Reuters reported.

Recently in Tunisia and Algeria, local security forces have been trying to quell unrest resulting from high food prices, bleak job prospects and low investment in their countries.

Two were killed and eight wounded in a provincial town in Tunisia, Reuters report on Jan. 9. Concomitantly in Algeria, the government temporarily removed taxes on both sugar and cooking oil in an attempt to stifle discontent, according to French daily Le Monde.

According to a Reuters survey of seven analysts, urban inflation in Egypt is likely to creep above 14 percent year-on-year in December, the highest level since January, driven by domestic food price rises and base effects. Figures are due to be released this week.

"We believe that the prevalence of higher food prices towards the end of the year and the lead up to the holidays could have a negative effect on headline inflation in December," Beltone economist Reham ElDesoki, who estimated an increase in urban inflation to 15.5 percent, told Reuters.

In 2010, non-core inflation, such as food and energy, increased, especially bread and cereals, Magda Kandil, executive director and director of research of the Egyptian Centre for Economic Studies, told Daily News Egypt.

Since mid-summer of last year, she explained, inflation for bread and cereals has increased some 20 percent, noting that as these staples are found in a wide range of products, their price fluctuations often directly impact those for other goods, such as vegetables.

Once bread and cereal prices change, their impact on other goods could last between three to four months, she added.

As a further temporary stopgap measure to fight rising food prices, Egypt's government, through the Ministry of Agriculture, is taking steps to introduce additional supplies of meat from Kenya in an attempt to dampen rising prices, the state information service reported, citing local reports.

Al-Masry Al-Youm additionally reported that 2,500 cows are expected to arrive from Ethiopia in the coming days.

Kandil attributes current inflationary pressures on international price changes linked to export policy as well as "greed" within distribution channels as individuals seek to take advantage of food shortages, which have invariably driven prices up, thereby squeezing vulnerable segments of the population.

To address such concerns, she recommended that a "better regulatory scheme and monitoring system" should be established.

Kandil contends that while the central bank consistently states that addressing food prices is not within its remit, marginalized segments of the population feel otherwise, as it directly correlates with the cost of living; and "has a wide impact on the rest of the economy."

To protect such vulnerable parts of the population, which feel the price pinch more than the employed, she believes that target price subsidies, availing services, and in-kind transfers are required as a near-term solution.

"This should be manageable over the short-term," she stated.

But to ensure that the unrest that occurred in Egypt in 2008 due to high food prices and that which is currently taking place in neighboring North African countries, a broader, structured agenda that creates jobs across sectors for those feeling the inflationary pinch the most is what is called for, Kandil said.

This is particularly salient to note in view of GDP growth forecasts for 2011, which show that Egypt will easily surpass 2010's 4.7 percent growth rate, reaching a robust 6 percent, which drive consumer spending and will thus ineluctably lead to even further inflationary pressures, Kandil affirmed.

In addition to economic growth, inflation will also be likely spurred upward by the depreciation of the Egyptian pound vis-à-vis both the dollar and the euro.

She highlighted that given that official 10 percent unemployment rate, social unrest is a source of tension not to be overlooked, especially, as she pointed out, "the informal sector of the economy will only provide a buffer for so long."

Referring specifically to the growing number of new college graduates with poor to zero employment prospects on the horizon in the face of increasing living costs, which will engender frustration and a sense of failure, Kandil underscored, "This could be a formula for trouble down the road."

© Daily News Egypt 2011


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