Egypt’s annual headline inflation rate continued its downward trend for the third consecutive month, reaching 27.4% in May, down from April’s 31.8%, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) on Monday.
Inflation eases in May
In May, the monthly headline inflation declined by 0.8% compared to April, marking the first negative change since June 2022, when the rate dropped by -0.3%.
CAPMAS attributed the decrease in the monthly headline inflation rate in May compared to April to the decline in prices of food and beverages (3.1%). In contrast, the prices of other goods and services groups rose in May, especially housing, fuel and electricity (0,7%), transportation (0,9%) and healthcare services (0.3%).
For the annual inflation rate for May 2024 compared to May 2023, CAPMAS data showed that inflation spiked as prices of goods and services soared up 80%.
Prices of food and beverages spiked in May by 28.9% year-on-year, alcoholic drinks and tobacco products by 83.4%, healthcare services by 25.6%, and entertainment and cultural services by over 58%.
It is worth noting that negative inflation occurs when the prices of goods and services decrease, yet the purchasing power remains low. This phenomenon is typically temporary, with prices expected to increase again in the months ahead.
Inflation target
Aligned with its commitments to the International Monetary Fund (IMF), the Central Bank of Egypt (CBE) has set two inflation targets for 2024 and 2026, coinciding with the conclusion of Egypt’s IMF loan program. The CBE aims for a target of 7% (±2%) in the fourth quarter of 2024, and 5% (±2%) in the fourth quarter of 2026. The IMF highlighted in June that curbing inflation is a short-term priority for Egypt, with monetary policy tightening to support this objective.
The CBE’s Monetary Policy Committee (MPC) considers headline and core inflation rates as key indicators while reviewing interest rates in its eight annual meetings.
Since the start of 2024, the CBE has raised key interest rates by a total of 8% (800 basis points), bringing the cumulative increases since March 2022 to 19% (1900 basis points), when talks with the IMF began amid the Russian-Ukrainian war.
In its latest meeting, the CBE’s MPC decided to maintain overnight deposit and lending rates, the main operation rate, and the discount rate unchanged at 27.25%, 28.25%, 27.75%, and 27.75%, respectively.
The MPC noted that the current monetary stance remains appropriate to drive inflation downward, and it will continue to assess its impact on the economy based on data. It reiterated that future policy rates will be determined by inflation projections rather than prevailing rates, underscoring its commitment to utilizing all available tools to sustain inflation reduction and stabilize prices in the local market.
