Egypt's inflation rate eases for fourth consecutive month but fuel price rise looms

Experts anticipate downward trend to continue, but warn of impact of diesel price increases

An Egyptian fruit seller works at a market in Cairo, Egypt. Reuters

Egypt's annual inflation rate fell slightly to 27.1 per cent in June, dropping for the fourth consecutive month, but with the possibility of an increase in fuel prices looming, analysts say a large-scale recovery is not imminent.

The slight decrease in the annual inflation rate, compared to 27.4 per cent in May 2024, can be attributed to a drop in prices across several product groups, the latest report by Central Agency for Public Mobilisation and Statistics (Capmas) found.

The general consumer price index for the entire country reached 225.6 points in June 2024.

While the prices of fabrics posted the sharpest drop, at 7 per cent, the prices of food and grocery products including fish and seafood, oils and fats, fruits and sugar and confectionery also fell.

However, the report also highlighted price increases in various categories. The prices of cereals and bread rose by 13.5 per cent, meat and poultry by 3.7 per cent, vegetables by 2.3 per cent, other food products by 1.3 per cent, mineral water, soft drinks, natural juices by 0.7 per cent, alcoholic beverages by 0.1 per cent and tobacco by 0.2 per cent.

Additionally, the prices of ready-made garments increased by 1.4 per cent, footwear by 2.5 per cent and actual housing rent by 0.6 per cent.

According to an analysis by Naeem Holdings, the annual reading came in lower than its forecast which had anticipated that the lifting of subsidies on bread in May – which raised the price of a loaf by 300 per cent – would push inflation higher than this month's reading.

In June 2024, the monthly inflation rate for the entire country increased by 1.8 per cent, a significant rise from the -0.8 per cent recorded in May 2024.

The food and beverages sector recorded an increase of 3 per cent, while the alcoholic beverages and tobacco division saw a 0.2 per cent rise. Clothing and footwear experienced a 1.2 per cent increase, and the housing, water, electricity, gas and fuel division rose by 0.5 per cent.

Other notable increases were observed in the health care division (2.7 per cent), transportation and communications (0.3 per cent), culture and entertainment (0.5 per cent), restaurants and hotels (0.6 per cent).

The downwards trend in Egypt's inflation will most likely not be felt by citizens as many food prices rose month-on-month. However, the decrease is more significant when viewed from a year-on-year perspective, according to Mohamed Ragab, an economic analyst.

“Last year in July, inflation was 37.5 per cent at a time when most dollars were only available on the black market at ridiculously high exchange rates, so the situation is definitely in better shape than last year,” he said.

“It's also important to note that most of the populace's problems right now are the energy disruptions and the imminent increases in electricity prices, which aren't factored into the overall inflation figure.”

The consensus among the country's financial experts is that the downwards trend in inflation will continue until the end of the year, said Mr Ragab. However, he cautioned against reading this as a sign of a significant recovery for the Egyptian economy, which is still struggling with unprecedented levels of external debt.

“The downwards trend can mostly be attributed to a favourable base year effect, because the first year of comparison was one of high inflation, so even small decreases from that base year are seen as an improvement,” Mr Ragab said, “However, it should be said that government reforms have contributed to the decline marginally.”

Naeem Holdings remains cautiously optimistic about short-term inflation trends, expecting a continued decline. However, the company stresses the importance of exercising caution in light of continuing geopolitical tensions, import restrictions and potential supply disruptions. Additionally, the continuing economic reforms could potentially introduce additional inflationary pressures.

On Tuesday evening, Egypt's cabinet spokesman, Mohamed Al Homsany, said that the government would be implementing immediate increases in fuel and electricity prices. However, he did not specify the exact timing of these changes.

The timing of the announcement, just one day before the quarterly meeting of the country's fuel pricing committee, has caused widespread speculation that the reduction in fuel subsidies may be implemented sooner than expected, according to Mr Ragab.

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Mr Al Homsany's announcement came after the International Monetary Fund (IMF) – a delegation from which is in Egypt currently – said that the planned review of the country's reforms, originally scheduled for July 10, has been postponed to July 29.

This delay in the review process will also result in a delay in the disbursement of $820 million to Cairo. The release of these funds is dependent on the IMF's approval of the reform programme that was agreed upon with Cairo before finalising an $8 billion financing package in March.

The reason for the postponement of the fund has not been officially announced. However, Mr Ragab mentioned that there are currently two separate theories circulating as to the cause of the delay.

“One line of thinking is that the IMF's postponement is a sign that it is waiting for the government to lower fuel and electricity prices before it disburses more money,” he explained, “The other is that this is just a regular procedure that follows the appointment of any new government.”

While he expected inflation to continue decreasing until the end of the year, he mentioned that if the government decides to increase the price of diesel this quarter, “we could see inflation rise again because of its centrality to most industries”.

“What we are sure of is that a fuel price hike is coming this quarter. What remains uncertain is whether the increase will be implemented merely on gasoline fuel or whether it will be extended to diesel as well,” he added.

As Egypt continues to face economic challenges, the government's decisions on fuel and electricity prices, along with the IMF's evaluation of the country's reform programme, will significantly impact the nation's financial landscape in the upcoming months.