Urban inflation eased to 13.9% in September, even as monthly prices continue to pick up

Annual urban inflation eased for a second straight month to 13.9% in September, down from 14.5% in August and its lowest level since February, according to CAPMAS data (pdf). Monthly prices rose 1.3%, the fastest pace since May, after falling 0.4% in June and barely moving in July and August. However, the annual relief was driven largely by a favorable base effect: prices had jumped 1.8% m-o-m in September 2025, so this year’s smaller rise was enough to pull the annual rate down.

Food prices are up: Food and beverage costs rose 2.8% m-o-m, ending three consecutive months of declines. That pushed annual food inflation up to 7.2% from 6.3%. Most of the pressure came from fresh vegetables, which spiked 14.7% in a single month. Meat and poultry rose 2.2%, while bread and cereals ticked down slightly by 0.3%.

Housing costs cooled on an annual basis: Annual inflation for housing and utilities dropped to 35.2% from August’s 42.8%, mainly because a sharp spike from September 2025 dropped out of the 12-month calculation. Housing remains the fastest-growing spending category y-o-y, even though monthly housing costs rose just 0.6%. Transportation (+24.3%), education (+18.7%), and home furnishings (+17.4%) were the other major annual drivers.

What the analysts expected: HC Securities’ Heba Monir had forecast a 1.3% monthly rise in September, exactly what Capmas reported, though the drivers were different. She had expected seasonal rent adjustments and back-to-school spending to push prices up. Instead, education prices were flat, actual rents rose 0.9%, and a 14.7% m-o-m surge in vegetables drove most of the increase. Looking ahead, Monir sees a steeper 2.1% monthly jump in October, driven by an anticipated c. 10% increase in fuel prices as the government cuts subsidies to meet fiscal targets. Elsewhere, Morgan Stanley expected a sharper slowdown in September to 13.2%, while EFG Hermes had flagged a September slowdown as base effects turned favorable.

What it means for the CBE

Slower headline inflation takes some pressure off the Central Bank of Egypt (CBE) to raise interest rates. It also widens the real-rate cushion protecting the carry trade. Ahly Pharos’ Hany Genena had put that buffer at 5.5 ppt in September, measuring the 20.0% top of the CBE’s corridor against 14.5% inflation. With September inflation easing to 13.9%, that cushion expands to roughly 6.1 ppt. EFG Hermes’ Mohamed Abu Basha has previously argued that a buffer around 500 bps is more than enough to insulate local debt from the US Federal Reserve tightening, noting that recent outflows were driven by geopolitics rather than US rates. Still, the underlying monthly rebound and the cost pressures lurking in the coming months point in the opposite direction.

The base effect is running out of steam. Last year, monthly urban prices rose 1.8% in October, then 0.3% in November and 0.2% in December. Any monthly increase above those low bars will pull the annual rate straight back up. Genena has flagged a possible 4Q spike into the 16-16.5% range, while Deutsche Bank expects inflation to hover around 15-16% through the rest of the year.

The CBE has already made room: The bank kept rates unchanged for a fifth consecutive meeting in September and dropped its explicit reference to maintaining a “positive real interest-rate margin,” opting instead to “deploy all available policy tools.” The CBE projects inflation to average 16.6% in FY 2026/27 and return to its 7% (±2 ppt) target by 2H 2027.

What’s next: The Monetary Policy Committee meets next on 29 October, almost two weeks before Capmas publishes October’s figures. That leaves September’s reading as the latest official data on the table when the committee decides on rates. The CBE’s final policy meeting of the year is scheduled for 17 December.