A second month of encouraging inflation figures: Inflation eased for the second consecutive month in November to reach its lowest level in six months on the back of slowing food price increases. Figures published yesterday by state statistics agency Capmas showed that inflation in urban areas slowed to 34.6% y-o-y during the month from 35.8% in October.

But pressures persist: Monthly inflation accelerated to 1.3% in November from 1% the month before.

Core inflation fell significantly: Core inflation — which excludes volatile items such as food and fuel — fell to 35.9% y-o-y in November from 38.1% the month prior, according to central bank figures. Meanwhile, monthly core inflation fell to 1% from 1.8%.

DRIVING THE TREND- Once again, you can thank food prices: Food and beverage price growth — the largest component of the basket of goods and services used to calculate inflation — slowed to 64.5% y-o-y from 71.3% in October.

A favorable base effect is also at work: The rapid rise in inflation at the end of 2022 and firsthalf of 2023 should help temper the annual figures over the coming months (all else being equal). The key question: Whether this outweighs the inflationary impact if the EGP loses further ground against the greenback should we move to a floating FX regime after the presidential elections.

This was better than what analysts had predicted: Analysts polled by Reuters had forecast core inflation to slow to 37.2% and the headline rate to decelerate to 34.8%.

THE BIG PICTURE- Inflation has hit record highs this year on the back of a series of currency devaluations and supply shortages caused by the shortage of foreign currency.

Slowing prices are yet to soothe the private sector: PMI data last week showed that business confidence fell to record lows in November on the back of continued inflationary pressures.

A long way to target: The central bank wants to bring inflation back down to 7% (±2%) by 4Q 2024.

WHAT’S NEXT- All eyes on the EGP. Where inflation goes from here will depend on when Hassan Abdalla’s CBE floats the EGP — and how the EGP fares against the greenback when it does. A float is widely expected at some point after the presidential election as authorities look to comply with the terms of the USD 3 bn IMF loan and release almost USD 700 mn in vital financing — and potentially a commitment to even more funding.

What to watch for: The market has already priced-in the USD at around EGP 50. Does it settle there? What’s the market-clearing rate that will prompt folks hoarding USD (or holding back from pulling the trigger on investments) to transact?

We could know more as soon as next week: The Central Bank of Egypt will hold its final policy meeting of the year on 21 December. Some have speculated that policymakers could look to raise interest rates, but we think it more likely that the Monetary Policy Committee will act on rates only in tandem with a move to a floating currency regime.

FYI- The international press had the story: Bloomberg | Reuters.

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