By Elias Al Helou
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Egypt’s annual urban inflation declines to 27.5 percent in June amid ongoing reforms

This downward trend extends from a record high of 38 percent reached in September 2023
Egypt’s annual urban inflation declines to 27.5 percent in June amid ongoing reforms
The slowdown has been attributed to the authorities' shift towards an inflation targeting model and a flexible exchange rate regime.

Egypt’s annual urban inflation rate slowed for a fourth consecutive month in June, declining from 28.1 percent in May to 27.5 percent, according to data from the country’s statistics agency (CAPMAS) released on Wednesday.

Downward trend from record high

This downward trend extends from a record high of 38 percent reached in September 2023. Moreover, the slowdown has been attributed to the authorities’ shift towards an inflation targeting model and a flexible exchange rate regime.

Risks of disrupting downward trajectory

However, analysts have warned of potential risks that could disrupt this downward trajectory. These include increases in administered prices such as fuel, medicine, fertilizers, and natural gas.

Economic reforms pose challenges

“Egypt is going through 30 months of intensive economic reforms that are expected to include repricing of subsidized electricity and fuel, which poses major challenges to taming inflation,” said Mona Bedeir, analyst, Al Baraka bank.

Food and beverage prices rise

Food and beverage prices rose by 30.8 percent year-on-year in June and 3 percent month-on-month. This was driven in part by a 300 percent increase in the price of subsidized bread that took effect on June 1. However, the impact was limited by bread’s relatively light weight in the index, accounting for around 1 percent of the food basket, and offset by disinflation of other food items and a favorable base effect.

Read more: Egypt approves $200 million in energy projects with foreign, national companies

Potential surprises for policymakers

While the base-year effect is still strong enough to absorb some of the expected price hikes, Bedeir warned that unexpected problems could still surprise policymakers. These include power shedding policies impacting fertilizer factories and potentially the harvest of some crops, as well as climate change and heat waves leading to higher food inflation.

Austerity measures linked to IMF support

Since March, Egypt has been implementing austerity measures linked to an expanded $8 billion dollar financial support package from the International Monetary Fund.

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