Inflation picks up again after months of cooling: Annual urban inflation has accelerated 0.5 percentage points to 26.2% in August after having fallen to 25.7% — its lowest level since December 2022 — in July, according to figures from state statistics agency Capmas.

Some analysts that we spoke to saw this coming: Some analysts we spoke to for our customary interest rate poll saw inflation picking up again in August on the back of recent price hikes. IBIS Consultancy economist Ali Metwally saw inflation in August and September rising to somewhere in the range of 30-31% between August and September. The favorable base effect played a crucial role in reducing inflation over the five months ending in July, but this will change for August, September, and October as these months will reflect the impact of increased fuel and electricity prices,” Zilla Capital’s Aya Zoheir told us.

But most of those who spoke to Reuters had a different outlook: A median forecast of 19 analysts polled by Reuters saw inflation slowing by 0.6 percentage points to 25.1% in August.

Fingers were firmly pointed to energy and transport price hikes: "We expected this, as the August reading reflects energy price hikes that were announced in the last week of July. This included diesel, which has a broad-based effect," CI Capital’s Sara Saada told Reuters. The firm saw inflation rising between 3-5 percentage points between August and September due to the increase in transport prices stemming fuel price hikes, co-head of research at CI Capital, Monsef Morsy, told Asharq Business. Transport costs were up 13.1 percentage points to 31.0 y-o-y in August, while on a monthly basis, prices were up 11.8%.

Food and beverage inflation continued to retreat on an annual basis: Food and beverage prices — the largest component of the basket of goods and services used to calculate headline inflation — continued to rise but at a softer rate of 29.0% y-o-y in August, down from 29.7% in July. On a m-o-m basis, however, food prices climbed to 1.8% in August — from 0.3% the month before — contributing to the 2.1% m-o-m rise in urban inflation.

Annual core inflation — which excludes volatile items like food and fuel — also rose, with the Central Bank of Egypt (CBE) recording an annual core inflation of 25.1% in August 2024, up 0.7 percentage points from 24.4% in July. Meanwhile, monthly core inflation was back in the red, coming in at 0.9% in August compared to -0.5% in July — only the second time monthly core inflation had ventured into negative territory since August 2021.

We could be looking at another month of inflation acceleration: “The impact of the recent electricity price hike is not reflected in August's inflation figures, which keeps us highly alert for September’s reading. We still expect indirect and second-round effects of the fuel price hike to show up in September’s inflation,” Economist Mona Bedair said in a note on LinkedIn.

Rising inflation could mean that rate cuts may be further away than initially expected: “The new data increases the likelihood of Egypt’s central bank keeping interest rates at an all-time high of 27.25% for a fourth consecutive meeting when it next meets on 17 October,” Bloomberg reports.

Remember: The central bank left interest rates unchanged on Thursday, citing cooling domestic and global inflation, an uncertain local trajectory for commodity prices, and slow economic growth.The Monetary Policy Committee sees inflation hovering around July’s levels until 4Q 2024, before it declines significantly in 1Q 2025 “due to the cumulative impact of monetary policy tightening and favorable base effects.”

What do analysts think? Prior to August’s inflation figures, analysts saw the CBE easing monetary policy by late 2024 or early 2025. EFG Hermes’ Mohamed Abu Basha sees the CBE cutting rates during the first quarter of 2025 expecting inflation to have materially slowed down by then, he told Bloomberg. “Monetary easing will be delayed because the CBE’s open market operations alone are insufficient to absorb these large inflationary shocks,” economist Medhat Nafei said following the release of the data.

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