Policy Viewpoints

Why did Consumer and Wholesale Prices Diverge in Egypt Recently?

Publication Number: ECES-PVP15-E&A

September, 2004

Author : Abeer El-Shennawy and Ahmed Galal

Type : Policy Viewpoints

The increase and divergence of the two measures of inflation raise a host of questions. For example, while the two indicators were expected to exhibit an upward trend in the wake of exchange rate deterioration, the question is: why did they behave so differently? More importantly perhaps, does the divergence between the two measures reflect low pass-through from exchange rate to consumer prices because of policy intervention (e.g., subsidy) at a time of slow economic activity? If so, does this mean, other things being equal, that future consumer prices are likely to be higher than observed currently? This Policy Viewpoint attempts to answer these questions.