Egyptian Inflation Little Changed With More Rate Cuts on Horizon

Customers shop at a bakery during the presidential election in downtown Cairo, Egypt, on Sunday, Dec. 10, 2023. The elections come as the Middle East's most populous nation is mired in an economic crisis and desperately seeking foreign currency while inflation runs at a record high. Photo by Islam Safwat /Bloomberg

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(Bloomberg) — Egyptian inflation slightly accelerated for a second month, an anticipated quickening driven by a cut in fuel subsidies that’s unlikely to put the brakes on a long-awaited monetary-easing cycle.

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Consumer prices in urban areas grew an annual 13.9% in April versus 13.6% the month before, Egypt’s main statistics body said Saturday. On a monthly basis, inflation was 1.3% versus 1.6% in March.

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Food and beverage prices, the largest single component of the inflation basket, climbed 6% year-on-year, compared with 6.6% in March. 

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Taming inflation that surged to a record almost two years ago has been key for Egypt as it overcomes its worst economic crisis in a generation. The North African country let the pound plunge almost 40% in March 2024 and has slashed subsidies for fuel, power and other items, helping secure a $57 billion bailout led by the International Monetary Fund and United Arab Emirates.

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Annual inflation for April remains less than half the September 2023 peak of 38%, reflecting a dramatic plunge earlier in the year. It’s the first reading since Egypt hiked fuel prices by an average of 13.6% on April 11, part of IMF-backed reforms that seek to improve government finances.

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Any impact on the country’s next interest-rate decision, due May 22, will probably be limited. The central bank reduced the benchmark deposit rate to 25% in mid-April — its first cut since the height of the Covid pandemic. 

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Many economists expect the still-significant gap between borrowing and inflation rates will allow authorities to make several hundred more basis points of cuts in 2025.

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The IMF, meanwhile, has said Egypt should be “vigilant” in reducing rates, citing the global uncertainty and potential inflationary impact stemming from US President Donald Trump’s trade tariffs.

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Announcing April’s cut, Egypt’s central bank said it expects inflation to keep declining this year and next, though at a slower pace than in the first quarter of 2025 and with upside risks including the China-US trade war and conflict in the Middle East. It targets inflation of 7%, plus or minus two percentage points, by end-2026.

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Goldman Sachs Group Inc. sees the annual figure rising past 16% in May due to an unfavorable comparison with the year before, and remaining elevated during the summer as more energy-price hikes kick in. It foresees inflation slowing to about 13% by the end of the year.

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Possible further price adjustments — including for pharmaceuticals and a planned widening in the value-added tax base in the fiscal year that starts in July — pose upside inflationary risks, according to the Wall Street bank.

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—With assistance from Abdel Latif Wahba.

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