Inflation cools for second consecutive month to 13.9% in July

Annual headline urban inflation cooled further in July by a whole percentage point, falling to 13.9% from 14.9% in June, according to data from state statistics agency Capmas seen by EnterpriseAM. The rate of inflation is now at its slowest pace since March 2025.

Driving the decline was an easing in food and beverages prices — the largest component of the basket of goods and services used to calculate headline inflation — which rose 3.4% y-o-y in July, compared to 6.9% in June.

This unexpected decrease pushed the headline figure below forecasts, HC Securities’ Heba Monir, who had predicted inflation rising to 15.4% y-o-y during the month, told EnterpriseAM. Due to the weight of food and beverage prices in calculating the headline figure, this decrease outweighed other segment increases like tobacco, she added.

Certain segments saw increases, like alcoholic beverages and tobacco prices, which rose 24% y-o-y during the month, compared to 15.8% in the previous month. On a monthly basis, this category rose by 7.9% in July, compared to a flat 0.0% change in the previous month, which followed the House approving amendments to the VAT Law in late June that specifically impacted the prices of cigarettes and alcoholic beverages, among other categories. Analysts had expected the decision to significantly fuel July inflation readings, but the effect was less pronounced than anticipated.

But it’s a different story for annual core inflation, with the reading — which excludes volatile items like food and fuel — increasing 0.2 percentage points from June to 11.6% y-o-y, according to data from the Central Bank of Egypt (CBE).

On a monthly basis, urban inflation fell 0.5%, after also shedding 0.1% in the previous month. Food and beverages inflation dipped a whole 3.0%, with fruit prices falling 11.0% m-o-m, vegetable prices down 7.0% m-o-m, and meat and poultry prices decreasing 4.9% m-o-m. While core monthly inflation recorded a decrease of negative 0.3%, representing deflation speeding up from the negative 0.2% recorded the month before.

“This decline in prices was expected because we are seeing deflation, not just disinflation, in many goods on a month-on-month basis,” Ahly Pharos’ Head of Research Hany Genena told EnterpriseAM. The drop in the headline figure can also be explained by the postponement of electricity price hikes and the appreciation of the EGP against the USD offsetting cigarette price hikes, Genena noted.

“Inflationary pressures, apart from administrative price increases, have significantly declined over the past two months,” Beltone Holding Head of Research Ahmed Hafez told us. “Regardless of prices for vegetables, fruits, and meat, I believe the current monthly inflation rate appears to be consistent with the CBE’s target,” Hafez noted. However, he expects increases in administrative prices in the coming period, which may cause the overall inflation figure to range between 12-14% on average.

But some highlighted that the easing of prices is not across the board and inflationary pressures still persist. “The slowdown was driven by a decrease in the prices of meat, poultry and vegetables. However, the rise in bread, cereals, and seafood prices indicates that the trend is uneven,” economist Hany Abou El Fotouh told us.

“The most significant threat to this trend is the potential for inflation to spike again due to global shocks or pressures on the exchange rate,” Abou El Fotouh noted. To mitigate this risk, it is crucial for policymakers to implement meticulous financial management to enhance local production, thereby reducing the country’s dependence on imports, Abou El Fotouh added.

REMEMBER- The CBE slightly revised its baseline and alternative annual headline inflation forecasts and now sees inflation averaging 15-16% in 2025, up from its 14-15% forecast, and 11-12% in 2026, up from its previous 10-12.5% prediction.

The slowing of inflation will only embolden forecasts that the central bank will cut rates later this month, with its Monetary Policy Committee set to meet on 28 August. The committee decided to keep rates steady at their last meeting as the market digests the 325 bps of cuts earlier in the year, but analysts see the bank moving to cut a further 200-300 bps by the end of the year.

Some corners of the international press also picked up the story: Bloomberg | Reuters