Inflation in Egypt at its lowest in a year due to low prices in food and beverages

Inflation in Egypt at its lowest in a year due to low prices in food and beverages

Egyptian inflation slowed to the slowest pace in a year and a half, even after a sharp currency devaluation and a historic move to increase the cost of subsidized bread. Consumer prices in urban areas of the North African country grew 28.1% annually in May, compared to 32.5% the previous month, state statistics agency CAPMAS said on Monday.

That figure was lower than expected by economists at Goldman Sachs Group Inc., EFG Hermes and Naeem Brokerage. The slowdown was driven by a 3% monthly drop in food and beverage prices, the largest single component of the inflation basket. In annual terms, they increased 31% in May compared to 40.5% the previous month.

Annual inflation fell 0.7% month over month, the largest drop since June 2019. Annual core inflation, the indicator measured by the central bank that excludes volatile elements, it slowed to 27.1% in May compared to 31.8% the previous month.

The cooling streak in costs in the Middle East's most populous nation is defying fears that the pound's fall of around 40% against the dollar in March would stoke another wave of inflation. The fact that such an increase has not occurred suggests that many items are already priced closer to the currency's much lower black market exchange rate before the devaluation, while greater availability of foreign currency is also curbing costs. .

The authorities enacted a 300% increase in the cost of subsidized bread starting June 1, a measure that will affect millions of households already recovering from the two-year economic crisis from which Egypt It's coming out now.

But the effect on inflation – along with a gradual elimination of subsidies for fuel products and a possible increase in electricity rates this summer “It's probably relatively small,” according to Mohamed Abu Basha, head of research at Cairo-based EFG Hermes. The Cairo-based bank is among those predicting that consumer costs will continue to cool through the rest of 2024.

Cutting subsidies is a key part of the Egyptian government's effort to cut spending after it secured $57 billion in investment and aid from the United Arab Emirates, the International Monetary Fund and others as part of a broad economic reform program.

Although slower price growth raises the prospect of an interest rate cut by the central bank, the IMF has said it agreed with Egyptian authorities that “Monetary policy conditions must remain tight in the short term to help bring down inflation” towards the central bank's goal. .

The Washington-based lender made the comments last week after reaching a deal on the upcoming review of its program in Egypt, which should lead to a loan disbursement of US$820 million.