Relative Price Adjustment and Inflation Dynamics: The Case of Egypt

Hanaa Kheir-El-Din

in What Drives Prices in Egypt?

Published by American University in Cairo Press

Published in print November 2009 | ISBN: 9789774163036
Published online September 2011 | e-ISBN: 9781617970344 | DOI:
Relative Price Adjustment and Inflation Dynamics: The Case of Egypt

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High and volatile inflation tends to reduce economic efficiency and has a negative impact on income and wealth distribution. It reduces the efficiency of the price system in allocating resources, as it makes it harder to distinguish between relative and absolute price movements. This chapter aims to shed light on the dynamics inherent in the two recent inflationary waves. On the supply side, changes in resource prices, the tax structure, trade policies, subsidies on inputs to production, technology, and expectations about future prices all play a key role in determining the relative price of goods. Prices of various sectors also adjust at variable rates as subsidies are gradually eliminated and as the economy moves from a highly distorted price structure to a market-determined one.

Keywords: inflation; income; wealth distribution; price adjustment; prices; economy; Egypt; subsidies

Chapter.  12021 words.  Illustrated.

Subjects: Political Economy

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