BELGIUM VS EGYPT
Comparative analysis of the economic performance of Belgium and Egypt from 2012 to 2016 in terms of inflation rates
In Belgium, Consumer Price Index forms the bases of inflation. The CPI shows price of a standardized basket of commodities, that quantifies the cost of living in Belgium. The annual change in CPI is termed as inflation rate (Steve, 2015, 13). Egypt has been affected by the highest inflation rates of all times in the last five years. The essay will make a comparative analysis of Belgium and Egypt Economic Performance in terms of inflation rates from 2012 to 2016. The essay will shed light on the inflation rate cases and reasons for variation of performance.
In Belgium, the Consumer Price Index, which is employed in the analysis of inflation, has important categories such as Housing and Utilities, which account for 17.6 percent aggregate weight, Transport 15.9 percent, Food and Non-alcoholic beverages that accounts for 16.4 % among others. In 2012, the average inflation rate in Belgium was 2.84%. It is reported that the recorded inflation was attributable to energy prices movement and as well as prices of processed foods (Danniels, 2013, 9). The pace of energy prices augmentation quickened consistently in the year 2012. Moreover, the rate of processed foods prices also increased thereby accelerating the inflation rate in 2012. Steve (2015, 13) reports that the oscillation of prices of energy and processed foods mirrors the implication on consumer prices in the price of processed food items and energy.
Energy prices were affected by price factors of local origin attributed to rise in labour cost. In 2013, the inflation rate in Belgium stood at 1.11% (Danniels, 2013, 7). The inflation rate went down by 1.73% from the previous year. The rate of price increase of unprocessed foods such as price of fish and vegetables among others accounted for the presence of inflation that year. In 2014, the inflation rate in Belgium flopped to 0.34, representing a 0.77 drop. In 2015, the inflation rate rose to 0.56 an increase of 0.22%. The current inflation year 2016 stands at 1.97% a rise by 1.41% from the previous year. Rising wages, higher taxes rise of raw material prices, high house prices and rise of energy prices created the reported inflation Steve (2015, 10).
Belgium Monetary and Fiscal Policies
Belgium government employs monetary policies to control the inflation. The government enacts monetary policies by increasing interest rates, to increase cost of borrowing and discourage consumers from borrowing. Steve (2015, 7) notes that Belgium government also uses fiscal policies by changing tax and spending levels in leveraging the level of total demand. The government increases tax to cut spending.
In 2012, inflation rate in Egypt stood at 7.1% as per the consumer price index. The inflation growth was attributed to local prices rise by 6.2% in year 2012. Moreover, the rise in butane gas and natural gas prices propelled the inflation to such a high figure. In 2013, the inflation rate in Egypt rose to 9.5 from the previous year (Farrah, 2011, 13). Factors such as increase in vegetable prices and other food prices resulted to the 2.4% increase from the previous year. In 2014, the inflation rate rose further to 10.1 percent. The rise was attributed to higher custom fees on commodities and skyrocketing commodity prices in the market. In 2015, the inflation further rose to 10.1 also attributed to general increase in food prices, increase importation as well as rise in price of energy am raw materials (Trading Economics. 2016, 5). The year 2016 saw inflation rise further to 14.1% from the previous year because of consistent rise of food prices earmarked as an international phenomenon for being the principle cause.
Egypt Monetary and Fiscal Policies
However, to curtail the runaway inflation, Egyptian government employs monetary and fiscal policies to keep the spiralling inflation on check. The government for example prints more money in the short-term to flood the market with pounds purposed to give an illusion of more wealth (Trading Economics, 2016, 3). The government increases custom duties on imported products to control inflation. The government also increases interest rates to raise cost of borrowing which consequently discourages borrowing (Sharaf, 2015, 12). The move serves to cut down money circulation in the Egyptian economy. The monetary and fiscal government policies decrease spending and trim petroleum and electricity subsidies. Rising interest rates by government serve to attract depositors ultimately putting a control to the skyrocketing inflation rates in Egypt (Al-Mashat, 2011, 11).
Belgium recorded a falling inflation trend between the year 2012 and 2013 that registered 2.84% and 1.11% representing a 1.73% drop. However, years 2014, 2015 and 2016 recorded a rise from 0.34, 0.56 and 1.97 percent representing a 0.22% and 0.1415 rise respectively (Steve, 2015, 5). Egypt recorded a rising inflation trend throughout the five years. The first year 2012 recorded 7.1%, 2013 9.5%, 2014 10.1%, 2015 10.4% and 2016 14.1%. The trend was a consistent 2.4%, 0.6%, 0.3% and 3.7% increase (Trading Economics, 2016, 4)
Inflation has adversely affected the two country’s economies. Rise of prices has made workers loose purchasing power. The inflation has created an econometric social structure creating two-class system. Moreover, printing of more money to control inflation in these countries has resulted to lose of currency value relative to global currencies. The scenario has made the two countries unable to attract sufficient foreign capital for economic growth.
Farrah, K 2011. 1.4. Contributions to harmonised CPI inflation. Journal of economics. doi:10.1787/518150568457
Al-Mashat, R. 2011. The Evolution of Monetary Policy in Egypt and Steps towards Inflation Targeting. Inflation Targeting in MENA Countries, 230-255. doi:10.1057/9780230316560_9
Steve, H., 2015. Belgium Inflation Rate. Retrieved from http://www.tradingeconomics.com/belgium/inflation-cpi
Trading Economics. (2016). Egypt Inflation rate. Retrieved from http://www.tradingeconomics.com/egypt/inflation-cpi
Danniels, J., 2013. Historic inflation Belgium – CPI inflation. Retrieved from http://www.inflation.eu/inflation-rates/belgium/historic-inflation/cpi-inflation-belgium.aspx
Sharaf, M., 2015. Inflation and Inflation Uncertainty Revisited Evidence from Egypt. Journal of Economies, 3(3), 128-146. doi:10.3390/economies3030128