Egypt’s headline inflation rate increased to a record 35.8 per cent in June, as food prices continued to surge in the country, which is grappling with an economic crisis.
That's up from the 32.7 per cent reported in May, data from the country’s statistics agency Capmas revealed.
Before the data's release by Capmas on Monday, analysts had predicted that the inflation rate, which has been steadily increasing since last year, would rise to a new high due to higher food prices than in May and an unfavourable base year contribution.
Food prices were driven higher in June due to increased demand during the Eid Al Adha feast, according to the forecast by Naeem Holdings.
The feast is typically a time when food consumption rises as Muslims celebrate one of their most important annual holidays.
However, food prices, which increased by 1.8 per cent from May, are showing signs of moderating, according to a report from Goldman Sachs.
The change between May and June was the lowest monthly rate of increase since last August, the report showed.
The largest increase in food and beverage prices was in February when it was 14.4 per cent higher than the previous month.
Additionally, the report said there may be signs that inflationary pressures on the Egyptian economy have begun to abate and that headline inflation has peaked.
“All else equal, we expect food prices to continue to moderate in the months to come, and headline inflation to remain at current levels before starting to decline in [the fourth quarter] of this year,” the report said.
The investment bank conceded that its projections for the Egyptian economy could be skewed if the local currency continues depreciating amid “present FX pressures”.
Government debt could also be an issue, as a growing foreign exchange backlog has impeded the government's efforts to attract capital inflows to Egypt.
The backlog is also why the government has been stalling on a large-scale asset sale programme under which it has pledged to sell more than 30 state-owned companies to private sector entities, Goldman Sachs said.
“These pressures could precipitate further FX weakness in the coming months, presenting upside risks to our inflation forecasts.”
Egypt has consecutively devalued its currency three times since March 2022 and the pound has lost over half of its value since then.
A marked rise in global food and energy prices, brought on by the Russia-Ukraine war, led to several economic reforms being undertaken by the Egyptian government, such as requesting a loan from the International Monetary Fund, which was approved in December.
The programme has stalled, however, and the fund has not yet conducted its first review of Egypt’s economy following the funding approval.
Cairo has said that fighting inflation is a priority. The central bank is targeting an inflation level of 7 per cent by the fourth quarter of next year.
Last month, Fitch Ratings revised Egypt's outlook to negative and gave the country its first downgrade since 2013, citing the lack of economic reforms and challenges to its fiscal system.
The country's long-term foreign currency issuer default rating was revised to 'B' from 'B+', five levels below investment grade, the ratings agency said.