This paper presents a brief background about the development of prices and wages in the Egyptian economy over the period 1990 – 2005. The Granger causality test is applied to examine causality between change in prices and wage inflation and to evaluate the results of the model. Among the results, it was shown that changes in public sector wages are independent from changes in prices. Moreover, the analysis shows that wages in public sector are function of lagged changes in prices but not in expected inflation rates. We believe that the outcomes of this research will have a crucial impact on the decision makers planning for economic activities in Egypt.