For the fourth consecutive month in June, Egypt’s inflation rate declines

According to figures released by Egypt’s statistics agency on Wednesday, the country’s annual urban inflation rate decreased in June for the fourth consecutive month, to 27.5% from 28.1% in May.

With the authorities switching to an inflation targeting strategy and a flexible exchange rate, the decline in June 2023 continued the downward trend that began at a record 38% in September 2023.

Later on Wednesday, central bank data revealed that Egypt’s core inflation, which excludes volatile goods like fuel and some food categories, decreased to 26.6% year over year from 27.1% in May.

Analysts have alerted us to potential hazards, though, such as rising costs for necessities like fuel, medication, fertilizer, and natural gas, which might halt the decreasing trend.

“Egypt is going through 30 months of intensive economic reforms that are expected to include repricing of subsidized electricity and fuel, which poses major challenges to taming inflation,” Mona Bedeir of Al Baraka Bank said.

June saw a 300% increase in the price of subsidized bread that went into effect on June 1st, and a 3% month-over-month increase in the price of food and beverages.

Due to the bread’s low index weight (it makes up only 1% of the food basket), the hike’s effects were mitigated by the favorable base effect and the disinflation of other food products.

According to Bedeir, unforeseen issues could still catch policymakers off guard even though the base-year effect is still powerful enough to offset some of the anticipated price increases during the year.

“Among these concerns is the policy of power outages, which affected fertiliser manufacturers and may eventually affect the harvest of some crops. The heat wave and climate change may also have a similar effect, raising food prices, according to Bedeir.

Implementing austerity measures in connection with an enlarged $8 billion financial support package from the International Monetary Fund, Egypt has been doing so since March.

Bedeir stated that the fact that the IMF postponed its third assessment of Egypt’s program to July 29 could mean that the international lender is giving Egypt more time to reach its goals. The IMF announced this on Tuesday.

The executive board of the IMF is anticipated to give $820 million to Cairo at the meeting, which was initially scheduled for this week.