Burgernomics: What the rising cost of fast food in Egypt reveals about inflation


Burgernomics: What the rising cost of fast food in Egypt reveals about inflation

Image Credit: Thred

When McDonald’s in Egypt released prices for its updated menu in early July, citizens took to social media to express their outrage at the price hike – a 50% increase for some products compared to last year.

For context, the fast-food chain’s signature Big Mac hearty meal has gone from EGP59 ($3.12) to EGP88 ($4.65). And this excludes value added tax and any delivery costs. Going back further, to 2019, 100 EGP (5.28 USD) was worth three Big Macs.

McDonald’s is not alone in the upward price trend in the fast food market. Pizza Hut’s famous family meal box has been gradually reduced from EGP125 (US$6.60) in 2017 to EGP267 (US$14.10) in 2022. Burger King’s Value Meal, an offer that targets budget shoppers, has grown from 22 EGP (1.16 USD) in 2017 to 50 EGP (2.64 USD) in 2022.

“Personally, I stopped going there after seeing the new prices. It’s just not worth it when there are cheaper competitors that offer the same quality. It’s like paying for expensive food, but it’s not expensive food,” says construction engineer Mostafa Khaled.

More worryingly, rising fast food prices in Egypt are a telltale sign of the continued inflation that plagues the country. What was once fast, accessible and affordable food is slowly turning into a luxury item. Some might argue that a silver lining is that rising fast food prices are decreasing unhealthy eating habits, but the issue is much more economic in nature, a reflection of the declining purchasing power of the average Egyptian, just a discussion about food.

UNDERSTANDING THE SITUATION OF INFLATION IN EGYPT

There’s more to it than meets the eye when it comes to the relationship between fast food prices and inflation in Egypt.

Inflation, i.e. simply the rise in prices of commodities and services over a period of time, has plagued Egypt since the start of the COVID-19 pandemic and due to the Russian invasion of Egypt. ‘Ukraine.

The Egyptian Central Bank recorded an annual inflation rate of 14.6% in June, an increase from 13.3% in May. The previous year, in June 2021, this number had been recorded at 5.3%.

As foreign exchange reserves remain scarce and many imports remain limited, the cost of production will naturally increase, which both limits and increases the supply price. Yet demand remains as it is, driving up product prices even further.

Consequently, the Egyptian government, citizens and businesses have been grappling with the challenges of rising inflation. In the case of McDonald’s, their solution to the challenges of inflation in Egypt was to drive up prices, much to the chagrin of customers.

RISE IN FAST-FOOD PRICES: A REFLECT OF THE EGYPTIAN ECONOMY

When The Economist jokingly created the Big Mac Index (BMI) in 1986, it was intended to explain the theory of purchasing power parity between states, or in simpler terms, the idea that rates of exchange rate should gradually move towards a level that equalizes the prices of the same goods and services in the two currencies.

In the case of the newspaper, the Big Mac was the standard – popular, universal and accessible. What was a light guide is now a feature of textbooks and several academic studies. By examining their “GDP-adjusted index,” which includes labor costs and distribution, a lot can be revealed about Egypt’s current inflation challenges.

Image Credit: The Economist

Against the US dollar, a Big Mac sandwich in Egypt cost EGP 42 in 2019 (USD 4.71 at the time) at an average exchange rate of 16.87. In other words, the US price for 1 Big Mac would almost be worth 2 Big Macs in Egypt. In 2022, this number has increased to 52 EGP (2.74 USD) against the US price of 5.15 USD (97.43 EGP) at an exchange rate of 18.95, highlighting many points regarding the inflation in Egypt.

The latest BMI update from July 22, done before McDonald’s price hike, said the sandwich is expected to cost 23.8% less than its current price when adjusted for Egyptian GDP. This percentage should increase once the price updates are taken into account.

Beyond BMI and prices, the numbers indicate several trends caused by inflation in Egypt. For starters, it shows that Egypt no longer offers the cheapest Big Macs in the world, a fact Egyptians proudly claimed years ago. Although still undervalued by US prices, Egypt’s number one fast food franchise is slowly becoming less affordable for its mass.

The BMI also fails to comparatively examine McDonald’s most expensive products, such as a Big Tasty, a cost that indicates how slowly McDonald’s is becoming a luxury item for the average Egyptian, who earns around nine thousand dollars. per month.

McDonald’s new prices further underline the impact of the war in Ukraine and global supply chain delays on Egypt. Abdel-Aziz El-Sayed, head of poultry at the country’s chambers of commerce, further asserted the impact of inflation on prices, attributing the rising cost of chicken, eggs and feed to the costs of production, distribution and labor.

Egypt’s wheat crisis is further aggravating costs for food businesses, as the world’s largest wheat importer has faced severe shortages caused by Russia and Ukraine.

In particular, BMI statistics indicate that cost inflation in Egypt is only just beginning, as the impact is gradual and not yet fully realized. Prices are expected to continue to rise, well beyond the world of fast food, as evidenced by the recent increase in gas and public transport costs.

In turn, many of the country’s middle and lower classes are giving up a list of goods and services that were once available to them. Over time, Egyptians will be forced to accept price hikes on goods and services. Whether the new costs are worth it or not is the choice of those who can afford them.

“It’s like McDonald’s isn’t an option for me anymore. I can’t see myself spending that much money on something that’s meant to be quick and cheap. […] although I think people will accept this new reality in three months,” said Ibrahim El-Fendi, an accounting professor.

For some, McDonald’s reflects their economic sacrifices. A once affordable dash-and-dine, now far too expensive for many.

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