Inflation eases for a third consecutive month to seven-month low

Inflation cooled for the third consecutive month in December, reaching its lowestlevel in seven months as increases in food prices continued to decelerate. Figures published last week by state statistics agency Capmas showed that annual inflation in urban areas slowed 0.9 percentage points to 33.7% in December from 34.6% in November.

Monthly inflation, on the other hand, inched up to 1.4% in December from 1.3% a month earlier.

Core inflation dips: Annual core inflation — which excludes volatile items such as food and fuel — fell to 34.2% in December from 35.9% the month prior, according to centralbankfigures. Meanwhile, monthly core inflation rose to 1.3% from 1% in November.

A decline in food price growth drove the trend once again: Food and beverage price growth — the largest component of the basket of goods and services — slowed to 60.5% y-o-y in December from 64.5% in November.

SOUND SMART:A favorable base effect is also at work because the rapid rise in inflation at the end of 2022 and first half of 2023 will help temper annual figures over the coming months (all else being equal). The key question: Whether this outweighs the inflationary impact if the EGP loses further ground against the greenback should we move to a floating FX regime now that President Abdel Fattah El-Sisi has secured a third term in office.

Just shy of analyst predictions: The numbers were slightly higher than the median 33.4%prediction put forward by analysts polled by Reuters. Inflation has been cooling from a historic high of 38% in September, although analysts have cautioned that inflation may pick up again in the wake of recent government price hikes and a widely anticipated currency devaluation.

We’ve got ambitious inflation targets lined up for FY 2024-2025: The government is hopingto see annual headline inflation fall to an average of 15% in the upcoming fiscal year, a significant drop from the 38% estimated for the current year. The central bank’s average inflation target is 7% (±2%) by 4Q 2024.

The international press had the story:Bloomberg | Reuters | The National.