Inflation rises for the third consecutive month to 26.5%

Inflation continues inching up: Annual headline urban inflation rose 0.1 percentage point to 26.5% in October, extending its upward trajectory for a third consecutive month, according to data from state statistics agency Capmas. The increase follows a modest 0.2 percentage point rise in September to 26.4%.

Driving the increase: “Half of the basket’s items recorded deceleration, other remained flat with only three items recording notable annual acceleration, namely clothing & footwear, housing & fuel, and medical care,” Al Ahly Pharos analyst Esraa Ahmed wrote in a note seen by EnterpriseAM.

Food and beverage inflation continued to retreat: 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 27.3% y-o-y in October, down 0.4 percentage points from a month prior. On a m-o-m basis, food prices climbed only 1.1%, down from September’s 2.6%.

Despite the slight jump, October’s reading comes much lower than expected: A Reuters poll of 17 analysts expected headline inflation to accelerate 0.6 percentage points to 27.0% y-o-y in October, with fingers firmly pointed at fuel price hikes that came into effect during the month and education costs. Closer to the mark was economist Mona Bedair, penciling in 26.8% in a note.

Inflation is yet to feel the pinch from rising fuel and education costs: While the mid-October fuel price hike of up to 17% and rising education costs were expected to weigh heavily on October’s inflation reading, their impact has largely been deferred. Education-related expenses will be reflected in February’s 2025 data, coinciding with second semester school fees, Naeem Holding’s Hesham Hamdey told Asharq Business. Bedair similarly added that “the fuel basket adjustments do not appear to reflect the recent mid-October fuel price hikes.”

Annual core inflation — which excludes volatile items like food and fuel — continued to slow, with the Central Bank of Egypt recording an annual core inflation of 24.4% in October, down 0.6 percentage points from the month before. However, monthly core inflation continued its upward trend, picking up 0.3 percentage points to 1.3% throughout the month.

Analysts are already split on which way inflation will go in November: Bedair expects inflation “to begin a downward trajectory in November, with pressures expected to ease further,” despite that “next month’s reading will still reflect the impact of the recent increases in fuel and tobacco prices.” Bloomberg on the other hand, sees inflation “likely” picking up in November as recent fuel price hikes will be fully reflected in the new data set, bolstered by cigarette price hikes from tobacco giant Eastern Company. Some others, including Hamdey, see falling fruit and vegetable prices as potentially offsetting additional pressures from fuel price hikes.

Inflationary pressures could ease going forwards if back-to-back subsidy cuts get put on pause: The government is in negotiations with the International Monetary Fund to delay the implementation of the plan to phase out subsidies. Talks are currently underway to adjust the timeline and targets of previously agreed reforms as the Fund carries out its fourth loan review.

Don’t expect rate cuts before the new year: October’s inflation data could strengthen the case for the Central Bank of Egypt to keep rates unchanged for the fifth consecutive meeting when it meets later this month, most analysts seemed to agree. Ahmed argued that the new numbers “underscore our view of stable states rates ‘until further notice.’”