Declining Inflation in Egypt

CAIRO (Reuters) – Inflation is expected to have declined for a fifth month in July, despite higher food, tobacco, and fuel prices, as IMF efforts to control monetary policy have started to take effect, a Reuters poll showed on Wednesday.

Egypt signed an $8 billion financial support package with the International Monetary Fund in March, which is aiding in controlling inflationary monetary policy, though it requires increases in many domestic prices.

Consequently, the government has raised the price of some subsidized products to combat a budget deficit that reached 505 billion Egyptian pounds ($10.27 billion) in the 3.016 trillion pound budget for the fiscal year that ended on June 30.

On June 1, the government increased the price of popular subsidized bread by 300%, and on July 25, the price of fuel was raised by up to 15%.

Analysts pointed out that the significant factor for inflation is progress compared to a year ago. Aya Zoheir of Zilla Holding financial consultancy noted, “The main factor that will contribute to the inflation rate in July is the base-year effect,” citing that inflation was 36.5% in the same month last year.

Annual urban consumer inflation is anticipated to have slowed to a median of 26.6% in July from 27.5% in June, according to forecasts from 18 analysts.

Carla Slim of Standard Chartered stated, “We forecast July CPI to slow, despite energy subsidy reform, which is set to drive monthly inflation momentum as Egypt gradually increases fuel prices, aiming for cost recovery by the end of 2025.”

However, she cautioned about potential upside risks to CPI due to second-round effects if other goods and services see higher prices due to increased commodity costs.

On August 1, the government increased the price of metro tickets, with further price hikes expected in the coming months.

Inflation had been decreasing since a record high of 38.0% in September, but unexpectedly jumped to 35.7% in February.

A median of five analysts predicted that core inflation, excluding volatile items like fuel and certain food categories, would decline to 26.0% from 26.7% in June.

The state statistics agency CAPMAS is scheduled to release June inflation data on Thursday.

($1 = 49.1600 Egyptian pounds)

(Polling by Anant Chandak and Devayani Sathyan; Writing by Patrick Werr; editing by Barbara Lewis)