Algeria:Price spiralof up to 20% expected in staple commodities

The Algerian Government has decided in conjunction with the Central Bank to devalue the Algerian dinar abruptly andat the unprecedented level of about 20%, in a unilateral move without consulting the economic and social partners.

The reduction of the Algerian currency through the monetary policy instruments is ostensibly designed to impact directly on the import bill as the steady influx of imports has so far generated enormous costs for the Public Treasury as well as for economic operators in various sectors of activity.

The authorities’ move is also patently aimed, according to economic experts, at drastically curtailing the significant budget deficit brought about by the ever-increasing public expenditures over the past few years.

As a result, the Bank of Algeria has decided on the steep devaluation of the national currency by 20% within 9 months (98 Dinars for a Euro at the beginning of the year 2013 compared with 117 Dinarsfor a Euro registered last Saturday).

Economic experts said that this striking dinar devaluation could jeopardize the purchasing power of Algerian households with on the prime target being the most vulnerable sections of the population.

In Algeria, the purchasing power suffered in 2011 from a record 9% painful inflation rate before scaling down to about 5.5% on average, without being oblivious of the fact that the wage increase rate in the country did not exceed 8% on average last year.

Al in all, between the public and private sector regardless of gross inequality and outstanding differences in terms of differing wages allotted in thetwo sectors, knowledgeable experts expect that the baffling devaluation of the Dinar against major currencies by about 20% could have devastating effects for the remainder of the purchasing power of the Algerians, in spite of the cushion provided by the country’s considerable foreign exchange reserves estimated  currently at  around 189 billion dollars.

According to the Central Bank, Algeria’s gold reserves have now reached over 148tons.