Annual urban inflation stood at 11.9% in January, marking its lowest level since September and a 0.4 percentage point drop from December, according to data from state statistics agency Capmas. The reading gives us reason to believe the Central Bank of Egypt will move forward with a rate cut when its Monetary Policy Committee meets tomorrow to review rates.

The dip in the headline figure occurred despite an uptick in the prices of food and beverages, which rose 1.9% y-o-y in January — the sharpest increase in six months — driven by a jump in vegetables, fruits, fish, and seafood prices.

This pressure “was more than offset by weaker energy and core inflation,” Capital Economics’ James Swanston wrote in a note seen by EnterpriseAM. January’s reading came in line with Capital Economics’ forecast of 11.8% and LSEG’s prediction of 11.7%, Swanston noted. Meanwhile, Al Ahly Pharos Head of Research Hany Genena told us that the reading was slightly above his forecast of 11.6% on average, “which likely takes a deep 200 bps cut off the table.”

On a monthly basis, inflation rose to 1.2% in January, up from 0.2% the month before, triggered by a 2.3% m-o-m increase in food and beverage prices, specifically a 6.9% m-o-m jump in vegetable prices. Other items in the basket of goods used to measure inflation saw little change in prices m-o-m.

What about core inflation? Annual core inflation — which excludes volatile items like food and fuel — fell to 11.2% y-o-y in January from 11.8% the month before, according to data from the Central Bank of Egypt. On a monthly basis, core inflation came in at 1.2%, up from 0.2% in December.

Don’t rule out a rate cut just yet: Genena believes the CBE still has sufficient room to cut rates by 100 bps, stating that “all the underlying factors support this move.” He cited continued deceleration, exchange rate stability, and the EGP’s appreciation against the USD as key drivers that will moderate inflation in the months ahead, particularly for imported production inputs. CI Capital, too, has penciled in a 100 bps rate cut.

Why a cut is logical: Genena argues that maintaining an unusually wide real interest rate buffer is “no longer logical,” especially given the government’s decision to delay electricity and fuel price hikes and keep basic commodity prices unchanged. He further noted that the economy is entering a 10-11 month window with limited supply-side risks, aside from the early February cigarette price hike, which he expects will be “absorbed through base effects.”

Why it matters: As inflation concerns cool, the CBE is increasingly emboldened to push ahead with its easing cycle. For the government, the move is critical to providing the Finance Ministry with much-needed breathing room on its debt-service costs. For the private sector, it signals the definitive start of a lower-interest-rate environment.

Some believe the CBE may decide to stay cautious: “We believe the CBE might prefer to be more cautious for now,” Thndr’s Esraa Ahmed tells us, citing episodes of Brent price increases due to geopolitical risks, upward pressure on some prices, and a relatively slow net buying of domestic debt by foreigners in the secondary market.

Looking ahead, analysts expect headline inflation to continue its downward path toward the CBE’s target range of 7% (±2%). Looking at the full year, Capital Economics sees room for 600 bps cuts through this year, while Genena is more optimistic, penciling in 600-800 bps of cuts, and Beltone’s Ahmed Hafez sees room for 700 bps in cuts.

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