Annual inflation eased for the fifth consecutive month in July: Annual urban inflation cooled to 25.7% in July, down 1.8 percentage points from 27.5% in June, according to data from state statistics agency Capmas. This came despite recent hikes to the prices of subsidized bread and fuel. July’s inflation figure is the lowest recorded since December 2022, according to our internal tracker.

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Food and beverage inflation was on the retreat after rising in June: Food and beverage prices — the largest component of the basket of goods and services used to calculate headline inflation — continued to rise but at a softer rate of 29.7% y-o-y in July, down 2.2 percentage points from a month prior. On a monthly basis, the rate of food and beverage inflation came in at only 0.3%, down 1.3 percentage points from the month before — this helped monthly inflation slow to 0.4% in July from 1.6% the month before.

Inflation came in lower than expectations: Analysts saw inflation cooling in July, but not as much as it did. A Reuters poll of 18 analysts forecasted annual urban inflation easing to 26.6% in July — a whole 0.9 percentage points higher than Capmas’ reading.

Core inflation also softened: Annual core inflation — which excludes volatile items such as food and fuel — slowed to 24.4%, down from 26.6% in June, according to data from the Central Bank of Egypt. While monthly core inflation was negative for the second time since August 2021, coming in at -0.5%, down from 1.3% in June.

Inflation is on a downward path, but August will have to deal with additional inflationary pressures: There seems to be a broad consensus that the rate of inflation will continue to fall throughout the year into the next, with Capital Economics forecasting that the country should be within reach of the Central Bank of Egypt’s target of 7% (±2%) in Q1 2025. However, Capital Economics points out that fuel price hikes in July only came in at the end of the month and that we will only fully see their impact in August. Economist Mona Bedair agrees and adds that the readings also do not take into account metro ticket price hikes that came into effect in the beginning of August.

Looking into August’s crystal ball: Economic analyst Dina El Wakkad said in a separate note that she expects headline inflation figures for August to come in between 25.3-25.6%. Bedair has a more optimistic forecast, seeing inflation figures for August falling between 25.1-25.6%.

Promising inflationary data are reigniting speculation on when the CBE will start cutting rates: While the CBE is expected to keep interest rates unchanged during its next meeting on 5 September, Pharos Holding sees a potential rate cut coming by 4Q 2024, Pharos Holding economist Esraa Ahmed said in a note. Capital Economics is a little more conservative, instead penciling in 1Q 2025 for a rate cut with the possibility of an earlier cut on the back of even more promising inflation data.

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