Egypt's Inflation Rate Eases for Fourth Month Running in June

Egyptian street vendors carrying breads, drive past a currency exchange point, displaying images of the US dollar, in Cairo, Egypt May 9, 2024. REUTERS/Amr Abdallah Dalsh Purchase Licensing Rights

Egypt's annual urban inflation rate slowed for a fourth consecutive month in June, to 27.5% from 28.1% in May, data from the country's statistics agency showed on Wednesday.

June's fall extended the downward shift from a record 38% in September 2023 as authorities have shifted to an inflation targeting model and a flexible exchange rate.

Egypt's core inflation, which strips out volatile items such as fuel and some types of food, eased to 26.6% year on year from 27.1% in May, central bank data showed later on Wednesday, Reuters reported.

Analysts have, however, warned of potential risks that could disrupt the downward trajectory including increases in administered prices such as fuel, medicine, fertilizers, and natural gas.

"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," said Mona Bedeir of Al Baraka bank.

Food and beverage prices increased by 30.8% in June on annual basis and by 3% month on month, following a 300% increase in the price of subsidized bread which came into effect on June 1.

The impact of the hike was limited by bread's relatively light weight in the index - it only accounts for around 1% of the food basket - and offset by disinflation of other food items and a favourable base effect.

Bedeir said that although the base-year effect is still strong enough to absorb some of the expected price hikes throughout the year, unexpected problems could still surprise policymakers.

"Such risks include power shedding policy which impacted fertilizer factories and could eventually impact the harvest of some crops. Climate change and the heat wave could also play a similar role, leading to higher food inflation," Bedeir said.

Since March, Egypt has been implementing austerity measures linked to an expanded $8 billion dollar financial support package from the International Monetary Fund.

The IMF said on Tuesday it had pushed back its third review of Egypt's program to July 29, which Bedeir said could signal that the multilateral lender is giving Egypt time to meet targets.

At the meeting, originally due to be held this week, the IMF's executive board is expected to disburse a $820 million payment to Cairo.