After the first round of revisions, further increases to the 2022 inflation outlook across the MEA region are possible
Margin pressures will continue to intensify for MNCs across the MEA region. Businesses will need to accompany price increases to business customers with higher value provided through their offerings, transparent cost-sharing in certain cases, use of surcharges, and better customer service. Meanwhile, consumers will increasingly spend more of their income on food, fuel, and basic needs, while price sensitivity and discount-buying are likely to increase. All firms will need to maintain flexible budgets to adapt to changes in inflation dynamics, currency volatility risks, and the need for potential mid-year adjustments to salaries in countries with double-digit inflation. Further consolidating route to market, optimizing supply chains, and revising the product mix based on availability and profitability will be critical to hitting 2022 targets.
MENA markets are especially exposed to imported food inflation, with FrontierView’s future inflation risk index related to the Russia/Ukraine war showing Lebanon, the UAE, Turkey, and Egypt among the most exposed. The FAO Food Price Index rose to a record high in February, with a 3.9% MOM and 24.1% YOY growth. The FAO Vegetable Oil Price Index growth was even higher, at 8.5% MOM last month. The wheat price benchmark is up 40% since the beginning of the year, as Russia and Ukraine account for 25% of global exports of this product. Egypt, Turkey, Nigeria, and Lebanon are highly exposed from the MEA region. In addition, the Brent crude oil price increased more than 30% between early February and late March, adding fuel cost pressures onto inflation.
FrontierView has revised up 2022 average annual inflation forecasts for most MEA markets, with potential for further revisions likely in the coming months. The largest revisions have been seen so far for Turkey, Nigeria, and Ghana. However, executives should watch for more revisions to Middle East markets—especially Egypt, Saudi Arabia, the UAE, and Algeria. High global food and energy prices are the main drivers of the revisions, with additional currency volatility pressures seen in Turkey, Egypt, and Ghana in the last few weeks. Governments will take precautions to try to limit price hikes, e.g., maintaining utility subsidies in Saudi Arabia; intervening in the markets through providing cheap goods in Egypt; banning the export of certain grains and oils in Turkey, Algeria, Nigeria, Egypt, and Lebanon; and trying to secure as much supply of food as possible across all countries in the region. However, rising inflation expectations, coupled with ongoing supply chain challenges, will further solidify price increases from companies into mid-2022. Furthermore, executives need to monitor extended high food inflation risk into late 2022. Alongside likely disruptions to Ukraine’s grain planting cycles, the increases in global fertilizer and natural gas prices create risk for high costs of basic food items all the way into Q3 2022.
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