Egypt’s annual headline inflation continued its downward trajectory for the third consecutive month in December, reaching 23.4%, down from 25% in November and 26.3% in October, according to data released by the Central Agency for Public Mobilization and Statistics (CAPMAS) on January 9.
Inflation slows in December
Headline inflation has primarily decreased due to a drop in the prices of several essential commodities, particularly vegetables, which fell by 14%. As a result, prices in the food and non-alcoholic beverages category dropped by 1.7%, contributing significantly to the inflation slowdown.
However, not all sectors experienced price reductions. Fruits, garments, oils, and housing-related costs (such as rentals and electricity) saw notable price increases. The recreation and culture sector recorded the highest rise at 48.2%, followed by transportation at 37.7% and healthcare at 35%. Other sectors with significant hikes include restaurants and hotels (28.2%), communications (23.9%), and education (12.3%).
The food and non-alcoholic beverages sector’s inflation reduction was driven by falling vegetable prices, though fruit prices continued to rise due to supply chain pressures. In transportation, higher costs were fueled by fluctuations in global fuel prices and domestic fees, worsened by logistical challenges. The sharp increase in recreation and culture costs reflects pent-up demand and rising prices for leisure goods and services, while healthcare costs rose due to increased demand for medical services and higher prices for medical products and hospital care.
The clothing and footwear sector saw a modest increase of 1%, while housing, water, electricity, gas, and other fuels rose by 0.9%. Furnishings, household equipment, and routine house maintenance also saw a slight increase of 0.7%.
Inflation targets
In response to current inflation trends, the Central Bank of Egypt (CBE) has extended its inflation target deadlines. The new targets aim for 7% (± 2 percentage points) by the fourth quarter of 2026, and 5% (± 2 percentage points) by the fourth quarter of 2028.
Additionally, the CBE has decided to maintain its current interest rates: the overnight deposit rate at 27.25%, the overnight lending rate at 28.25%, and the main operation rate at 27.75%.
These measures are part of ongoing efforts to stabilize the economy, which include addressing domestic supply shocks and implementing fiscal consolidation to reduce debt. The tight monetary policy, alongside the economic impacts of the Russia-Ukraine conflict, has also contributed to the prevailing inflationary pressures.
Outlook
According to the International Monetary Fund’s (IMF) regional report, Egypt’s inflation is expected to moderate to approximately 16% by the end of FY2024/2025. However, achieving this target will depend on several factors, including the resolution of supply chain bottlenecks, government fiscal measures, and the broader global economic environment.
The inflation trend remains vulnerable to both external shocks (such as fluctuations in global commodity prices, including energy) and domestic pressures, particularly in sectors like housing and food, the IMF said.
In March, Egypt inked an $8 billion financial support package with the International Monetary Fund (IMF) to help ease its budget deficit and curb inflation. Yet, the package mandates the government to cut subsidies on certain local goods, which has led to higher prices.
