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Egypt Consumer Prices (Jul.)

Egypt’s headline inflation rate picked up to a three-year high of 13.6% y/y in July and we think it will remain above the Central Bank of Egypt’s target range until early 2024. Greater flexibility of the pound has taken some pressure off policymakers to hike interest rates aggressively, but we still think rates will rise a further 150bp, to 12.75%, by the end of this year.

Weaker pound to push inflation higher; further rate hikes on the cards

  • Egypt’s headline inflation rate picked up to a three-year high of 13.6% y/y in July and we think it will remain above the Central Bank of Egypt’s (CBE’s) target range until early 2024. Greater flexibility of the pound has taken some pressure off policymakers to hike interest rates aggressively, but we still think rates will rise a further 150bp, to 12.75%, by the end of this year.
  • The headline rate – which covers urban consumers only – rose from 13.2% y/y in June to a three-year high of 13.6% y/y in July. (See Chart 1.) This left inflation further above the upper bound of the CBE’s inflation target range of 7±2%. On a monthly basis, prices rose by a chunky 1.3%.
  • The breakdown of the data showed that last month’s increase was entirely driven by stronger non-food inflation, almost all of which was fuelled by transport inflation. Food inflation, which had been the major driver of stronger inflation over the first half of the year, was unchanged at 22.7% y/y in July.
  • Our measure of non-food inflation rose from 8.6% y/y in June to a three-year high of 9.2% y/y in July. Transport inflation jumped to 17.0% y/y last month, its fastest pace since May 2019. This came on the back of a 2.3% local fuel price hike as well as sharp increases in vehicle prices and transport services. Inflation rose among most other major non-food categories (see Table 1) due to the impact of the weaker pound.
  • Looking ahead, we think that headline inflation will accelerate over the coming months as officials commit to a more flexible exchange rate, allowing the pound to weaken, and fuel prices are likely to be hiked further to reflect high global energy prices. We expect that inflation will peak at around 18% y/y in Q4.
  • The CBE left interest rates on hold at June’s meeting as the shift to a more flexible exchange rate regime may have eased some of the pressure on policymakers to act more aggressively with monetary tightening to shore up the balance of payments position. That said, with inflation set to rise further, we think that policymakers will opt to resume the tightening cycle when the MPC meets next Thursday. We have pencilled in a total of 150bp of hikes, taking the overnight deposit rate to 12.75%, by the end of this year.

Chart 1: Egypt Consumer Prices (% y/y)

Sources: CAPMAS, CEIC, Refinitiv

Table 1: Egypt Consumer Prices* (% y/y)

Consumer Prices

Food & Bev

Housing

Transport

Health

Clothing

Education

% m/m

% y/y

% y/y

% y/y

% y/y

% y/y

% y/y

% y/y

Apr.

3.3

13.1

26.0

5.6

6.3

3.4

7.1

12.7

May

1.0

13.5

24.8

7.4

5.8

4.0

7.5

12.7

Jun.

-0.2

13.2

22.4

7.6

6.3

4.2

8.9

12.7

Jul.

1.3

13.6

22.7

5.2

17.0

5.0

10.0

12.7

Sources: CAPMAS, CEIC, Refinitiv. *Based on series for urban households.


James Swanston, MENA Economist, +44(0) 207 808 4991, james.swanston@capitaleconomics.com

James Swanston Middle East and North Africa Economist
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