Annual headline urban inflation rose for the third month running in May to 16.8%, up from the 13.9% recorded in April, according to data from state statistics agency Capmas. On a monthly basis, inflation rose 0.6 percentage points to 1.9%.

The inflation reading came in higher than forecasts set by experts we spoke to, as Ahly Pharos’ Hany Genena saw headline annual inflation coming in at 15.25% in May, while HC Securities’ Heba Mounir expected inflation to accelerate only 0.3 percentage points to 14.2% y-o-y.

The central bank has been optimistic about the overall trajectory of inflation, predicting last month that inflation would further dip throughout the remainder of 2025 and 2026.

What about core inflation? Annual core inflation — which excludes volatile items like food and fuel — rose to 13.1% in May from 10.4% in April, according to data from the Central Bank of Egypt (CBE). On a monthly basis, core inflation stood at 1.6% in May, compared to 1.2% the month before.

Driving the trend: Food and beverage price inflation, the largest component of the basket of goods and services used to calculate headline inflation, rose by 11.0% y-o-y. Fruit inflation saw the steepest annual increase during the month, rising 61.8% y-o-y. “On a seasonally-adjusted annualised basis, we estimate that prices rose by 24.2% y-o-y, which was the strongest pace since September,” Capital Economics’ James Swanston said in a note. “Meanwhile, our measure of energy inflation increased to a four-month high on the back of the hikes to local fuel prices towards the end of April that continued to filter through in May,” Swanston added.

The effects of the rise in fuel prices may be starting to show: “We partially attribute the acceleration in inflation to a delayed pass-through effect of the 11 April c.12-15% increase in gasoline and diesel prices since it took place almost mid-month, which may have impacted food and beverage and transportation prices in May,” HC Securities’ Nemat Choucri told EnterpriseAM.

ICYMI- The Madbouly government hiked vehicle fuel prices by up to 14.8% in April, a move analysts told us would have a direct and indirect impact on inflation.

There’s also the base effect: Genena previously told us that the float of the EGP back in March of last year led to a fall in prices, after it drove the end of the parallel market that had overvalued the USD and undervalued the EGP. This, he said, was bound to be heavily reflected as a base effect on last month’s reading.

Seasonal factors are also at play: The rise in inflation “does not reflect extended or primary dynamics that suggest the emergence of new inflationary waves that might require a return to further monetary tightening,” banking expert Mohamed Abdel Aal told EnterpriseAM. “We see this rise as a result of seasonal increases in the prices of food items in particular, as well as the residual cumulative effect of fuel price hikes,” he said.

REMEMBER- The CBE cut interest rates by 100 bps in its third meeting of the year in May, in a move that marked the Monetary Policy Committee’s (MPC) second consecutive change to policy rates since March 2024, following seven consecutive meetings where rates were held steady. “The moderating trend in headline and core inflation, coupled with easing underlying dynamics, suggests an improvement in inflation expectations,” the MPC said last month.

Upcoming price hikes could push inflation up further: Expected hikes to the fuel prices could push inflation up to around 17-18% across June and July, before falling to around 16% by August, Genena told us.

The figure could encourage more caution from the CBE moving forward: “The latest bump up in inflation coupled with global uncertainty may prompt officials to maintain this cautious approach [to monetary loosening]. We have pencilled in a further 600 bp of interest rate cuts this year, to 18% — this is more dovish than other analysts expect, although the risks are skewed to the upside,” Swanston wrote. Meanwhile, Genena told us that he sees the MPC keeping interest rates unchanged until August, citing the upcoming fuel price hikes as a reason.

Some corners of the int’l press also took note of the figures: Bloomberg | Reuters

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