Inflation decelerates for the first time since July: Annual headline urban inflation dropped a full percentage point from the month before to 25.5% in November, marking the first fall in inflation in three months and Egypt’s lowest inflation reading since December 2022, according to data from state statistics agency Capmas.

Driving the decline: Food and beverage price inflation — the largest component of the basket of goods and services used to calculate headline inflation — fell 2.7 percentage points throughout the month to an annual rate of 24.6%, their slowest pace in over two years. On a monthly basis, F&B prices fell to negative 1.9% — marking a three percentage point drop and the first time in the red since May.

November’s numbers were well below expectations: The one percentage point drop was well below the median forecast of 15 analysts polled by Reuters last month, who anticipated inflation decelerating only 0.1 percentage points from October’s reading to 26.4%. Most of the nine analysts polled by EnterpriseAM in mid-November were even more pessimistic, with the majority expecting the full impact of fuel price hikes and rising tobacco prices to be reflected in worsening inflation in November.

Annual core inflation — which excludes volatile items like food and fuel — fell 0.7 percentage points from October’s reading of 24.4%, recording 23.7% in November, according to the Central Bank of Egypt. On a monthly basis, core inflation fell 0.9 percentage points, registering 0.4% in November.

Some expect inflation to drop back to single digits in 1Q 2025: Capital Economics’ James Swanston is penciling in continued small decelerations in December and January before a more significant drop back into single digits through the rest of 1Q 2025. This would come as the year-on-year comparisons begin to reflect previous falls in the EGP, Swanston noted.

What does this mean for interest rates? Despite the better-than-expected inflation readings, a majority of analysts are standing by their conviction that the Central Bank’s Monetary Policy Committee will keep rates stable when it meets next on 26 December, according to Bloomberg. Analysts are on the whole staying with their prediction that the central bank will begin its rate easing cycle in the first quarter of the year. The CBE left interest rates unchanged at its last Monetary Policy Committee meeting late last month, with the bank stating that “the current policy stance remains appropriate until a significant and sustained decline in inflation materializes” and citing continued upside risks.

Lower-than-expected inflation could impact our negotiations with the IMF: The new data could undercut our case for delaying planned fuel subsidy cuts under our current IMF program, with lower-than-expected inflation possibly indicating that another fuel price hike might not have as much of an impact on inflation as expected. Negotiations between the government and the Fund and expected to wrap up before the end of the year.

The unexpected drop also caught the attention of the int’l press: Reuters | Bloomberg.

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