Egypt: Inflation accelerates less than expected in October
Latest reading: Inflation picked up for a third consecutive month in October, coming in at 26.5%, which was up from September’s 26.4% but below market projections. The uptick chiefly reflected a strong expansion in money supply. In terms of subcomponents, the acceleration was driven by a sharper rise in prices for housing and utilities.
Still, the trend pointed down, with annual average inflation coming in at 29.8% in October (September: 30.5%). Meanwhile, core inflation fell to 24.4% in October from September’s 25.0%.
Lastly, consumer prices rose 1.08% over the previous month in October, below the 2.12% increase logged in September. October’s result marked the softest rise in prices since July.
Outlook: Our Consensus is for inflation to average close to October’s level in November–December. Inflation will then trend down through calendar year (CY) 2025, falling below CY 2024’s level. The slowdown will be driven by an approximate halving of money supply growth, along with past interest rates hikes and a notably softer depreciation of the Egyptian pound against the USD. However, upside risks to the outlook linger: Additional subsidy cuts as part of a bailout agreement with the IMF are likely going forward, exerting upward pressure. In addition, inflation is expected to remain above the upper bound of the Central Bank of Egypt (CBE)’s 5.0–9.0% target band until CY 2027. If the CBE—as it claims it wants to do—lowers the upper bound of this range to 7.0% in CY 2025, inflation will remain above target beyond CY 2029.
Panelist insight: Analysts at the EIU added:
“The target is set to be lowered in 2025, to 5%± 2 percentage points, from 7%± 2 percentage points, but we consider this unrealistic. Instead, we expect the Central Bank of Egypt (CBE) to shift away from the high real interest-rate regime that was formerly used to prop up a fixed exchange rate, and to tolerate relatively high inflation to stimulate economic growth.”