Egypt's annual headline inflation rate drops to 23.4% in December

Mounting financial needs and regional instability continue to cast shadows over economic outlook

A market in the Bulaq district of Cairo. EPA

Egypt's annual headline inflation rate decreased to 23.4 per cent in December, down from 25 per cent in November, with the expectation that the worst impact of recent price hikes for fuel, electricity and other items may have passed.

The decline in inflation was mainly attributed to a drop in the prices of vegetables by 14 per cent, a 0.7 per cent decrease in dairy, cheese and eggs as well as a 0.6 per cent drop in fish and seafood, the Central Agency for Public Mobilisation and Statistics (Capmas) reported on Thursday.

However, price increases were observed in telephone and fax services (11 per cent), fruit (7.5 per cent) and medical products, devices, and equipment (5.5 per cent).

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On a monthly basis, the headline inflation rate was flat in December, compared to a 0.1 per cent decline in November, indicating a stabilisation in prices.

The latest figures follow a decrease in the annual headline inflation rate in November from 26.3 per cent in October, ending a three-month streak of increases.

The slowdown, despite inflation remaining high, might allow the Central Bank of Egypt to consider reducing interest rates in the coming months to support economic growth.

Egypt is navigating economic challenges and implementing reforms as part of its $8 billion loan agreement with the International Monetary Fund. In December, the country reached a staff-level agreement with the IMF for a $1.2 billion disbursement, bringing total funding under the programme to $4.4 billion.

The IMF deal, which aims to restore macroeconomic stability and promote sustainable growth, requires Egypt to implement a flexible exchange rate regime, reduce fiscal deficits and strengthen social protection measures.

The government has already taken steps such as allowing the Egyptian pound to depreciate and gradually phasing out fuel and food subsidies.

The Central Bank of Egypt has set a target inflation rate of 7 per cent by the end of 2025 and is scheduled to review interest rates on January 20.

Egypt has faced numerous challenges over the past five years, including the Covid-19 pandemic, impact from geopolitical tensions from wars in Gaza and Russia-Ukraine as well as global economic challenges.

The IMF has urged for the country to speed up reforms to improve the business environment, cut down the state's part in the economy and increase private sector confidence to attract foreign investment.