Social unrest has been growing on the back of rising inflation, which is undermining consumers' purchasing power and fuelling general dissatisfaction with the fallout of economic reform. This has led to a rising number of demonstrations. These include further protests against rising prices by thousands of textile workers at Mahalla al-Kubra (who are generally credited with having started the current wave of labour protests in late 2006). Groups such as doctors, nurses and university professors have also threatened to strike, a rare phenomenon in Egypt.

Thin rations

The government has sought to address the discontent in several ways. It is especially attempting to improve subsidy provision, separating the production and sale of subsidised bread—the main element in the Egyptian diet—in order to reduce corruption. Families were allowed to add children to their ration cards in February for the first time since 1988 (increasing the total number of beneficiaries from 40m to an estimated 55m). Nevertheless, as rising wheat prices force more and more people to rely on subsidised bread, the queues are lengthening and supplies are coming under strain. Similar problems have also arisen regarding diesel fuel, which is used to power machinery and farm equipment. Shortages have led to outbreaks of fights at petrol stations, and accusations that the government is deliberately keeping stocks hidden to boost prices.

Consumer price inflation rose again in February, to 12.1% year on year, up from 10.5% in January. The month-on-month increase was 1.8% in February, compared with 4% in January. Food prices, which account for 40% of the basket of goods used to calculate consumer price inflation, rose by 16.8% year on year in February, similar to the 16.2% year-on-year increase recorded in January.

In addition to soaring food prices, building materials, especially steel and cement, have also seen sharp price increases, driven by buoyant domestic demand which is further boosting inflationary pressures. The price of rebars produced by Al-Ezz Steel, which commands a 65% share of the domestic steel market, rose by E£370/tonne (US$67) at the beginning of March, pushing up the wholesale price to E£4,580/tonne and the consumer price to E£5,000/tonne. This was the fourth increase so far this year, which the company blames on global factors boosting input costs. Cement prices also rose in mid-March, to E£450/t, from E£440/t the previous week. Fertiliser prices, which are government controlled, have also risen sharply, by around 90% to E£1,500/tonne at the beginning of March in an effort to equalise global and domestic prices (though this still leaves a 40% discount on world market prices). Subsidising prices has led to distortions in the local market, creating insufficient supplies at the low, official prices and a growing parallel economy.

At the same time, international commodity prices, especially for wheat and food oils, have increased strongly, by nearly 70% during 2007. This has forced the government to increase domestic wheat prices, from E£220 per bushel to E£320 per bushel—the price paid by the government to farmers for the 2008 crop, in the hope that more wheat will be made available for the domestic market. Egypt is the world's largest wheat importer, importing around 6m tonnes/year, about half the country's needs. Rising food prices led the government to increase subsidies by E£4.7bn in the fourth quarter of 2007, taking total subsidies for fiscal 2007/08 to E£14.4bn.

Minimum wage

To alleviate pressure, the government is considering raising the minimum wage from the current level of £E35/month (US$6). A meeting in mid-February of the Higher Council for Wages (which includes representatives of government, unions and business) recommended a rise to £E250/month, with an annual review. However, unions are demanding at least £E600 to ensure minimum living standards, and protestors have called for a minimum wage of as much as £E1,200/month. Even in the event of the government agreeing to a higher minimum wage, given the size of Egypt's informal economy, such an increase is unlikely to provide much assistance to the very poor.