Inflation unexpectedly cools, putting rate-cut cycle back in play

Annual urban inflation eased 0.3 percentage points to 14.9% y-o-y in April — the first decline in three months and a full point below the 15.9% consensus from 14 analysts polled by Reuters, according to Capmas data. Core inflation fell 0.2 percentage points to 13.8% y-o-y, according to CBE data.

Headline m-o-m inflation decelerated 2.1 percentage points to 1.1%, with food and beverages tipping into disinflation at -0.7%. Core m-o-m slowed more modestly, by 0.1 percentage points to 1.1%.

The mix was uneven. Food and beverages rose 1.1 percentage points to 6.7% y-o-y and housing and utilities jumped 3.2 percentage points to 38.5% on the back of electricity price hikes. Pulling the headline down? Transport (a 10.2 percentage point drop to 29.2%) and health (a 7.7 percentage point decrease to 9.3%).

A step in the right direction? Sure. But we’re still a long way away from meeting our targets, as the central bank's 7% y-o-y (±2 percentage points) inflation target for 4Q 2026 looms ever closer. Zooming out, annual inflation is still at its highest level since May of last year.

Looking ahead, “inflation will remain around current levels in 2Q-3Q 2026, on average, with the CBE year-end inflation target of 5-9% looking increasingly unlikely,” Beltone head of research Ahmed Hafez tells us. “Notwithstanding this, with the currency finding some stability, the ceasefire deal still holding up, and early signs of a potential de-escalation, we are also ruling out further material price pressures,” he adds.

Why it matters: The central bank’s Monetary Policy Committee meets on 21 May, and the calculus has shifted. After putting rates on hold last meeting, a hike is now less likely — and resuming the easing cycle is back in play.

ALSO FROM THE DEPT. OF UNEXPECTEDLY GOOD NEWS- Growth hit 5.0% in 3Q FY 2025/26, 0.2 percentage points above original estimates and despite “the repercussions of the start of the war in March,” Prime Minister Mostafa Madbouly said Wednesday, per a cabinet statement. He cautioned that 4Q may take a harder hit, but said full-year growth “will, God willing, be promising and higher than the previous fiscal year” — which clocked 5.3% y-o-y across the first two quarters.

AND IN NOT SO POSITIVE NEWS- Net foreign assets contracted 22.0% m-o-m in March to USD 21.4 bn, down USD 6.0 bn from February, per CBE data (pdf). That breaks a 21-month appreciation streak that peaked at USD 29.5 bn in January before reversing when the war on Iran was launched in late February. “The decline in foreign assets held by commercial banks was expected post war due to capital outflows,” Genena tells us.

Commercial banks are taking the hit. Their net foreign assets fell USD 5.9 bn (-50.5%) to USD 5.8 bn, while the CBE’s own position barely moved — down USD 108 mn (-0.6%) to USD 15.5 bn.