Inflation accelerates for first time in four months

Inflation rises again after four-month deceleration: Annual headline urban inflation rose by 0.8 percentage points in October to end the month at 12.5%, largely on the back of higher fuel and food and beverage prices, according to data from state statistics agency Capmas seen by EnterpriseAM. October’s reading marks the end of a four-month streak of easing price inflation.

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The rise was mostly expected, with some forecasts closer than others. “October's inflation came slightly lower than our estimate of 12.6% y-o-y and 1.9% m-o-m,” HC Securities' Heba Mounir told us. The reading was also below the 13.0% figure Al Ahly Pharos had expected, as the decline in food items was offset by an increase in transportation and fuel prices, Head of Research Hany Genena told EnterpriseAM. Meanwhile, the reading was higher than forecasts from Capital Economics and Reuters ’ poll, both of which had expected inflation to land at 12.0%.

The culprits: Housing, water, electricity, gas, and other fuel prices were the primary drivers of inflation this time, with prices rising 27.1% y-o-y during October, after Egypt raised fuel prices for the second time this year during the month. Inflation in rentals also climbed by 43% during October after amendments to the Old Rent Law were approved, according to Capital Economics. Prices of alcoholic beverages, tobacco, and narcotics rose by 26% y-o-y, while those of healthcare services rose by 28.4% y-o-y.

The prices of food and beverages — the largest component of the basket of goods and services used to calculate headline inflation — also inched up slightly, rising 1.5% y-o-y in October compared to 1.4% in September. This was fueled by a 4.8% y-o-y rise in bread and cereal prices and a 36.4% y-o-y rise in fruit prices.

It was the same story on a monthly basis, with urban inflation accelerating for the third consecutive month. Prices rose 1.8% m-o-m, which HC Securities attributed primarily to the rise in fuel prices, leading to higher transportation costs and food prices.

What about core inflation? Annual core inflation — which excludes volatile items like food and fuel — rose to 12.1% y-o-y in October from 11.3% the month before, according to data from the Central Bank of Egypt (CBE). On a monthly basis, core inflation came in at 2.0%, compared to 1.5% a month earlier.

The outlook: Inflation is expected to continue accelerating through the end of the year, with forecasts indicating that the average inflation rate will rise to 13% y-o-y in 4Q 2025, according to Capital Economics.

What does this mean for interest rates? The outlook is mixed: Capital Economics expects the CBE to push ahead with back-to-back rate cuts of 100 bps each at its upcoming meetings in November and December, before cutting interest rates by a cumulative 800 bps in 2025. Genena and Thndr’s Esraa Ahmed, on the other hand, expect the CBE to hold rates later this month, with Genena seeing room for a 100-200 bps cut in December. Ahmed agrees, telling EnterpriseAM that “the current inflation level allows good room for the CBE to cut [rates] by a further 100 bps” before the end of the year, but “as more inflationary pressures come from core items, we believe the CBE might prefer to hold rates in its upcoming meeting.”