Annual headline urban inflation eased again in August by nearly two percentage points, falling to 12.0%, according to data from state statistics agency Capmas seen by EnterpriseAM. The 1.9 percentage point fall from July brings the country’s headline figure to its lowest reading since March 2022 and marks the third consecutive month of easing price growth.

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Pretty much all analysts saw headline inflation falling in August, but few saw it falling sodrastically, with a Reuters poll of 13 analysts producing a median forecast of 12.7%.

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 — with food prices increasing only 2.1% y-o-y for the month. The 1.3 percentage point drop in the rate of food inflation was backed by slowing fish, dairy, and vegetable prices. The figure marks the third monthly deceleration in food price increases and a four-year low.

Non-food inflation also dropped 2.2 percentage points to 16.8% y-o-y, driven by transport inflation falling a whole 14.8 percentage points to 26.7% y-o-y on the back of a base effect from transport and fuel price hikes last year, Capital Economics’ James Swanston wrote in a recent research note seen by EnterpriseAM. Alongside this, healthcare price inflation eased 4.5 percentage points to 33.9% y-o-y, and restaurant and hotel price inflation eased 1.4 percentage points to 13.8% y-o-y. But prices didn’t decrease across the board, with tobacco and alcohol, energy, and furnishings notching small upticks.

But it’s a different story on a monthly basis, with headline inflation back in the red after two months in the green. Monthly inflation came in at 0.4%, driven by a 3.5 percentage point jump in food price inflation to 0.5% on the back of higher fruit and vegetable prices.

What about core inflation? Annual core inflation — which excludes volatile items like food and fuel — fell 0.9 percentage points from July to 10.7% y-o-y, according to data from the Central Bank of Egypt. On a monthly basis, core inflation came in at 0.1%, after falling 0.3% a month earlier.

Looking ahead, confidence is growing that the Central Bank of Egypt (CBE) will meet its upcoming inflation targets, with Capital Economics thinking that the country will hit its 7% y-o-y (± 2 percentage points) target for 4Q 2026. Leading up to this, the firm sees gradual cooling continuing throughout the year.

Another vote for inflation dipping: Al Ahly Pharos’ Hany Genena expects inflation to stay on its downward trajectory in September, to come in at 10% y-o-y, citing the delay in implementing electricity price hikes, exchange rate stability, and government efforts to keep prices low. “In this case, the CBE will have ample room to cut interest rates by 2 percentage points in October,” he wrote.

But some expect an uptick in inflation toward the end of the year, including CI Capital, which sees inflation falling again in September on a favorable base effect before climbing in October in both annual and monthly turns, according to a research note from the financial services group seen by EnterpriseAM. CI Capital sees upcoming fuel price hikes in October pushing up headline inflation to around 14% by the end of the year. Beltone Holding Head of Research Ahmed Hafez sees inflation creeping back up towards the end of the year to around the 13% mark due to changes to the Old Rent Law, upcoming fuel price hikes next month, and the potential for cigarette price hikes.

The drop in inflation will embolden the CBE to carry on with rapid rate cuts for the rest of the year, several analysts told EnterpriseAM. On the dovish side is Capital Economics, which sees the bank cutting rates by an additional 400 bps by the end of the year to bring the deposit rate to 18.00%. Hafez also sees room for further easing by the end of the year despite his expectation of an uptick in inflation, pointing to a real interest rate of 9% on both a trailing and forward-looking basis. Beltone’s more hawkish forecast sees a further 200-250 bps worth of cuts by year-end.

The drop in inflation also got ink in some corners of the global business press: Reuters.

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