Inflation rates in Egypt have continued to decline over the past five months. However, the recent government decision to raise fuel prices by up to 15% raises questions about the future inflation trend, particularly amid ongoing global and regional geopolitical challenges.
As of July 2024, Egypt’s annual headline inflation rate fell to 25.2% from 27.1% in June. The annual urban inflation rate also decreased to 25.7% in July, down from 27.5% in June, according to the latest data from the Central Agency for Public Mobilization and Statistics (CAPMAS).
CAPMAS data revealed that the Consumer Price Index (CPI) for urban areas in Egypt reached 226.7 points in July, reflecting a 0.5% inflation rate, down from 1.8% in June 2024.
Similarly, the monthly core inflation rate slowed to -0.5% in July 2024, compared to 1.3% in July 2023 and 1.3% in June 2024, according to the Central Bank of Egypt (CBE). On an annual basis, the core inflation rate eased to 24.4% in July 2024, down from 26.6% in June 2024.
“Even with a downward trend in general annual inflation expected in the second half of 2025, reductions in consumer subsidies, such as those for petrol and utilities, will likely keep price growth strong,” said Ali Metwally, Economic Consultant at IBIS Consultancy, in an interview with Business Monthly.
In July, Egypt increased fuel prices by 10% to 15% to align with its commitments to the International Monetary Fund (IMF) for phasing out fuel subsidies. This adjustment was made just before the IMF announced the completion of the third review of the $8 billion loan program approved for Egypt in December 2022.
According to Metwally, average inflation in Egypt reached a record high of 34% in 2023 and is expected to remain elevated at 30% in 2024. Key factors include past excess money supply growth from CBE financing to the public sector, the devaluation of the pound in March, and increases in the minimum wage.
Since the onset of the Russian-Ukrainian war, Egypt has implemented four rounds of devaluation, causing the Egyptian pound to lose over 60% of its value against the US dollar. The current exchange rate averages over EGP 49 per USD, compared to around EGP 15 per USD before the war.
Metwally projected that while base effects will increasingly impact inflation, he expects the CBE to reach its 9% ceiling in the second half of 2025, with a slight possibility of this extending into the first quarter of 2026.
Despite the declining trend in inflation rates, they remain above the targets set by CBE—7% (±2%) for the fourth quarter of 2024 and 5% (±2%) for the fourth quarter of 2026. These targets are part of the CBE’s commitments under the IMF loan deal to address high inflation. However, Egypt’s Prime Minister, Mostafa Madbouly, recently stated that the government is aiming for an inflation target of 10% in 2025, suggesting the CBE’s target may not be achieved on time.
Metwally revealed to Business Monthly that the general consensus is the CBE may shift away from maintaining high real interest rates, previously used to support a fixed exchange rate and tolerate higher inflation to foster economic growth. As a result, inflation is expected to average 7.9% from 2026 to 2028.
Since March 2022, the CBE has raised key interest rates by a total of 19% (1900 basis points), with 8% of this increase implemented this year. Most expectations suggest the CBE will maintain current interest rates through the end of the year, as tightening monetary policy is a key strategy to control high inflation.
Nashwa Saleh, Associate Professor of Finance and Fintech at Kingston Business School in London, told Business Monthly that inflation in Egypt is expected to rise by 1% to 2% by the end of 2024. This increase will be driven mainly by higher pharmaceutical prices, a surge in fuel costs, and increased liquidity from remittance inflows, which have returned to pre-devaluation levels.
Saleh projects that annual remittance inflows into Egypt will grow to $25 billion in 2024, up from $22.1 billion in 2023 and $32 billion in 2022. She also noted that base effects are expected to dissipate within 18 months, making it challenging to meet the CBE’s targets on schedule. Consequently, Saleh anticipates that the CBE will keep interest rates unchanged through the end of 2024.
