Inflation accelerates for a second month in September to 26.4%

Inflation nudges higher for the second consecutive month in September: Annual headline urban inflation ticked up for a second month, rising 0.2 percentage points from the month before to 26.4% in September, according to data from state statistics agency Capmas. Despite inflation picking up, the figure still places the rate of inflation a whole 11.6 percentage points below the record 38.0% recorded during the same period last year.

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Driving the uptick were energy costs: Electricity, gas, and other fuel prices accelerated at a rate of 34.8% during September, up from 15.5% in August. Behind the increase was a 50% rise in the price of subsidized butane gas cylinders and electricity price hikes that came into effect in September, this came on top of fuel price hikes of up to 15% that came into effect in late July.

Food and beverage prices helped stem the uptick in inflationary pressures: Food and beverage prices — the largest component of the basket of goods and services used to calculate headline inflation — rose at a softer rate of 27.7% y-o-y in September, down from 29.0% in August. On a m-o-m basis, however, food prices climbed by 2.6% in September — up from 1.8% the month before — contributing to the 2.1% m-o-m rise in urban inflation, the same level seen in August.

Quite a few analysts seemed to think that inflation would go the other way: A Reuters poll of 19 analysts forecasted annual urban inflation easing to 26.0% — 0.4 percentage points below the month’s actual reading. A CNBC Arabia poll of 10 economists revealed a split outlook for September’s inflation figure, with half of those surveyed penciling in up to a 1.5 percentage point dip in inflation due to a favorable base effect.

Annual core inflation — which excludes volatile items like food and fuel — inched down, with the Central Bank of Egypt recording an annual core inflation of 25.0% in September, down 0.1 percentage point from 25.1% in August. However, monthly core inflation went in the reverse direction, picking up 0.1 percentage points to 1.0%.

The inflationary road ahead is positive — albeit bumpy: Some, including Capital EconomicsMENA Economist James Swanstom, see inflation inching up for the third consecutive month in October as “recent price hikes feed in.” However, the outlook for the rest of 4Q is more positive and even more optimistic walking into 2025 — inflation is expected to see “a sharper drop back into single digits in 1Q 2025.”

But not everyone agrees that we will necessarily see inflation dipping by the end of the year: Others see the inflationary trend potentially taking a bit longer to unravel, including Al Ahly Pharos analyst Esraa Ahmed, who warns of some potential “inflation stickiness” to come in the last quarter. Ahmed points to seasonal factors to do with education, a possible fuel price hike, and the absence of a significantly positive base effect.

To cut, or not to cut? The slight acceleration in inflation for the month makes it ever more likely that the central bank’s Monetary Policy Committee will keep rates as they are when it meets in exactly a week’s time. Economist Mona Bedair agrees, writing that “given the current inflation dynamics, a thorough assessment is needed,” adding that “while global monetary easing may create favorable conditions for reducing rates, the CBE's primary mandate remains to stabilize inflation and anchor inflation expectations.”

Geopolitics may also throw a spanner in the works, according to Ahmed, who describes recent developments — presumably in relation to Israel’s ever-expansive war on neighboring countries — that are making their mark on oil and wheat prices. These developments could further pressure the central bank to put any plan to start easing rates on hold, explained Ahmed.

Remember: The central bank left interest rates unchanged in its last meeting in September, citing cooling domestic and global inflation, an uncertain local trajectory for commodity prices, and slow economic growth. Rates have been stable since March, when the central bank delivered a jumbo 600 bps rate hike that accompanied the float of the EGP.

The international press also picked up the story: Bloomberg | Reuters.