According to a recent Reuters poll, headline inflation in Egypt is expected to reach a new all-time high in August. This projection comes after record-breaking levels were observed in both June and July. The increase is primarily driven by rising prices in tobacco, culture, and recreation sectors.
Based on the median forecast from a poll of 14 analysts, it is anticipated that annual urban consumer inflation will rise to 37.1 percent. This follows the previous record highs of 36.5 percent in July and 35.7 percent in June. It is worth noting that the previous peak of 32.95 percent was recorded in July 2017.
To manage inflationary pressures and stabilize inflation expectations, the Central Bank implemented measures. One such measure was an increase in overnight interest rates by 100 basis points on August 3. As a result, the deposit rate reached 19.25 percent. The central bank has implemented a total of 1,100 basis points increase in interest rates since March 2022.
Read more: Fitch downgrades Egypt’s outlook to negative, affirms ‘B+’
However, there are analysts who observe that the pace of price increases might be decelerating.
Carla Slim, MENA economist at Standard Chartered stated that the underlying momentum is expected to diminish, especially considering the decline in global wheat prices and the relative stability of the parallel exchange market. Slim further mentioned that Standard Chartered predicts annual inflation to alleviate to 36.0 percent.
Stable inflation
Mohamed Abu Basha, director, head of Macroeconomic Analysis, EFG Hermes commented that the group anticipates annual inflation in Egypt to remain relatively stable. He also noted that there might be continued inflationary pressure due to the impact of tobacco prices and, to a lesser extent, food prices. EFG Hermes projected August inflation to reach 36.6 percent.
Core inflation
According to a median estimate from five analysts, core inflation in Egypt, which excludes fuel and certain volatile food items, is expected to slightly increase to a new high of 41.3 percent from the previous record of 41.25 percent in July. The state statistics agency CAPMAS and the Central Bank are set to announce the August inflation data on September 10.
Economic reforms
Since March 2022, Egypt has experienced three consecutive currency devaluations. These devaluations have led to the Egyptian pound losing over 50 percent of its value within that time frame.
The escalation of global food and energy prices, primarily influenced by the Russia-Ukraine war, prompted the Egyptian government to implement various economic reforms. As part of these measures, the government sought financial assistance from the International Monetary Fund, and in December, their loan request was approved.
However, the program has experienced a delay, and the International Monetary Fund (IMF) has not yet conducted its initial review of Egypt’s economy subsequent to the approval of the funding.
Prioritizing inflation
Cairo has prioritized combating inflation. The Central Bank’s goal is to achieve a 7 percent inflation rate. They aim to reach this target by the fourth quarter of the following year.
In June, Fitch Ratings downgraded Egypt for the first time since 2013 and revised its outlook to negative. The downgrade was attributed to the perceived absence of economic reforms and the fiscal system’s challenges faced by the country.
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