This paper aims to test the widely held view that Egypt’s inflation spikes are primarily the result of external food price shocks. Therefore, it empirically examines the degree of pass-through of international food price shocks to domestic prices in Egypt. This is estimated using two different methodologies: a 2- step regression model to estimate the long-run pass-through effect, and a VAR model to estimate the short-run effects and examine the relative importance of different sources of inflation in Egypt. Our central empirical result is that while international food prices shocks contributed to inflationarypressures in Egypt, they are not solely to blame for the country’s inflationary woes. In spite of the large food basket in the CPI and the large imported component in the food basket, between 12% and 36% of the shock in international food price inflation pass through to domestic food inflation, and changes in international food price inflation explain between 10% and 25% only of the changes in domestic food inflation. Also, the analysis shows that the spill-over effect to CPI is feeble. Finally, international price inflation has asymmetric effect on domestic prices. All of this suggests monetary policy will remain a powerful tool in the fight against inflation in Egypt.
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