Urban inflation unexpectedly slowed to 14.5% in August

Urban inflation slowed to 14.5% in August, defying forecasts of a pickup and undershooting the central bank’s own near-term call. Annual urban inflation eased from 14.9% in July, according to Capmas data (pdf). A Reuters poll of 17 analysts had predicted 15.5% — with the softest forecast, 14.6%, still above the actual reading. Prices rose just 0.1% m-o-m, according to the data.

Core inflation went the other way. Annual core inflation — which strips out volatile items like food and government-set prices — edged up to 14.9% in August from 14.7% in July, with monthly core inflation at 0.3%, according to a Central Bank of Egypt (CBE) statement.

The slowdown went against the central bank’s own guidance. When the CBE held rates for a fourth straight meeting in August — keeping the overnight deposit rate at 19.0% and lending at 20.0% — it said it expected inflation to pick up temporarily in 3Q 2026 on unfavorable base effects before resuming its descent.

Food offset the electricity hike: The roughly 12% household electricity increase from late July did show up: housing, water, electricity, gas, and fuel rose 1.8% on the month, the biggest monthly gainer, and were up 42.8% y-o-y — the steepest of any category. But food and non-alcoholic beverages fell 1.1% — a third straight monthly drop — led by cheaper vegetables (-6.9%), meat and poultry (-1.3%), and fruit (-1.2%), leaving annual food and beverage inflation at just 6.3%. On the year, transport rose 24.4%, education 18.7%, and furnishings 16.9%.

The August outturn came in “significantly below” EFG Hermes’ 15.8% projection, largely because food fell for a third month against an expected 0.5% rise, the bank’s head of macroeconomic analysis Mohamed Abu Basha tells EnterpriseAM; he sees a further slowdown in September as favorable base effects kick in, but no move from the CBE, with “rising global oil prices keeping some upside risk” and policy rates likely stable through year-end.

External risks still argue for caution. Geopolitical escalation, higher oil prices, exchange-rate and capital-flow uncertainty, and the potential fallout from the US Federal Reserve’s next move on global financial conditions all point to the CBE staying put in its 24 September meeting, Nagwa Samak, dean of administrative sciences at Galala University, tells us. She expects the bank to “resume its monetary easing cycle gradually over the subsequent meetings, with rate cuts implemented in stages rather than through a large one-off reduction,” once external tensions ease and domestic pressures stay contained.

Where the CBE sees it heading: Headline inflation averaged 14.6% in 2Q, slightly below the bank’s prior 15.0% forecast. Under its baseline, the CBE expects inflation to average 16.6% in FY 2026/27, then slow to 8.1% in FY 2027/28 and align with its 7% target range (±2 percentage points) in 2H 2027.

Why it matters: The softer results come ahead of the 24 September MPC meeting — one of three left this year, with 29 October and 17 December to follow — and hand the committee a dovish data point, tempered by firmer core inflation. The bank has room to wait: the economy grew 5.1% in FY 2025/26, beating the IMF’s 4.6% forecast; the S&P Global PMI climbed to a seven-month high of 49.6 in August; and net reserves hit USD 57.2 bn at the end of August, while the EGP held firm through USD 9.5 bn of portfolio outflows. February’s 100 bps cut remains the only move this year so far, and urban inflation is still near its 2025 average of 14.2%, far below the 38% peak of September 2023.