Inflation Inequality in Egypt Amid the Russia–Ukraine War

In February 2022, global supply chains were disrupted amid the eruption of the Ukraine–Russia war. A jump in prices followed, particularly for basic commodities including food and energy, and these passed through to rapid inflation around the world. Using commodity-level data for January–December 2022 separately for urban and rural areas, and most recent Household Income, Expenditure and Consumption Surveys for Egypt we investigate the pass-through of commodity prices – through households’ consumption and substitution patterns – to households’ cost of living and welfare. Our results show the distributed lag effects of commodity inflation on households’ consumption patterns, and identify socio-economic groups that are affected most adversely by the shock. We find that those at the lower end of the expenditure distribution as well as those residing in rural areas have experienced systematically higher welfare losses. Between January and May of 2022, when international prices were rising the fastest, the bottom decile of rural Egyptian households saw a markedly higher inflation rate than other rural residents at higher deciles and compared to all urban households. Over the course of 2022, the richest households in Egypt’s urban areas faced 18.1 percent inflation, while the poorest households in rural areas faced 22.5 percent inflation, a 4.4 percentage points gap. The compensating variation required to keep households at their January 2022 welfare levels is higher for poorer rural households and while the median households in both regions eventually ‘catch up’ in welfare loss, the top decile groups consistently fare better across all three countries and both regions.