Egypt's inflation rate hits 26.2% in August ending five-month deceleration streak

Egypt's inflation rate quickened in August, ending a five-month streak of deceleration, as the government's reduction in fuel subsidies took its toll on consumer prices.

The annual inflation rate hit 26.2 per cent in August, up from 25.7 per cent in July, state statistics agency Capmas reported on Tuesday. The acceleration was driven by a 1.9 per cent month-on-month increase in consumer prices – the largest since February.

Analysts had expected the inflation rate to continue on its downwards path, despite a rise in the consumer price index.

According to analysis by Naeem Holdings, the inflation rate was expected at 24.8 per cent in August “due to a favourable base year contribution of -2.47 per cent over the month”, despite a projected 1.24 per cent increase in the CPI. Meanwhile, EFG Hermes had also projected a flattish reading of 25.5 per cent for August.

The rise in inflation was driven by transportation prices, which rose 10.7 per cent on a monthly basis and 29.8 per cent annually. Analysts had expected transportation prices to increase following the government's decision in July to raise fuel prices – including diesel – ahead of a review from the International Monetary Fund on the country's continuing loan programme.

Meanwhile, food and beverage prices rose by 1.8 per cent from July, but recorded a year-on-year increase of 28.1 per cent.

Other categories that saw month-on-month price increases included clothing and footwear, which rose by 1.1 per cent, housing and utilities (up 0.7 per cent), furniture and household equipment (up 1.7 per cent), and health care (up 3.4 per cent).

The sharp rise in inflation comes after the government implemented a new wave of subsidy cuts, including price hikes of up to 15 per cent for a range of fuel products and sizeable increases in electricity tariffs ranging from 15 per cent to 40 per cent, as per an electricity ministry statement from earlier this week.

The move followed a 300 per cent increase in subsidised bread costs in June.

The acceleration in inflation increases the likelihood of Egypt's central bank keeping interest rates at an all-time high of 27.25 per cent for a fourth consecutive meeting when it next meets on October 17, according to financial analyst Mohamed Ragab.

Most economists expect the country to embark on a monetary-easing cycle towards the end of this year or in early 2025, he said.

Except for transportation costs, which rose higher than anticipated, inflation trends “were largely in line with expectations”, EFG Hermes said in a note.

“In this context, we do not see the numbers indicating any major changes to the inflation trajectory, but rather a bump on the road to disinflation. Moreover, the numbers show the rationale behind the central bank preferring to keep policy rates on hold at its meeting last week, as it had to be cautious against cutting rates too soon before being fully reassured about the inflation path,” it said.

“We, therefore, believe the numbers likely support rates being on hold for the remainder of the year and cuts being delivered in [the first quarter] of 2025.”

Egypt's economy has faced several challenges in recent years, including high debt levels, inflation and a foreign exchange shortage.

However, the country has made progress in implementing economic reforms, which has earned it consecutive bailout deals worth more than $60 billion from international partners.

Last month, analysts told The National that the IMF was showing growing trust in Egypt's economic reforms, but warned of challenges ahead. The fund agreed to soften conditions for Cairo's loan programme, but cautioned that regional conflicts and inflation could create more hurdles.

Before the latest data, Egypt's inflation rate had been defying expectations by slowing even after authorities let the pound plunge nearly 40 per cent in March to stem a two-year economic and foreign-exchange crisis. The move, which included an interest-rate raise, helped seal the global bailout package.

In August, Prime Minister Mostafa Madbouly sought to calm nerves on the flight of “hot money” from the country, saying that the government plans to bring inflation below 10 per cent by the end of 2025 or the beginning of 2026.