Egypt’s inflation has been on a declining trend for the sixth consecutive month in August, primarily due to a favourable base effect. Despite this positive development, analysts argue that there is a likelihood of a month-on-month increase in inflation following a series of price hikes led by the government. The government’s decision to raise the prices of subsidized products is aimed at combating a budget deficit that reached 505 billion Egyptian pounds ($10.3 billion) in the last fiscal year.
Analysts predict that urban consumer inflation is expected to slow to a median of 25.1% in August compared to 25.7% in July. However, the recent energy and transportation cost hikes in August are expected to result in a 1.0% monthly increase in inflation. Factors contributing to this increase include higher summer produce prices, fuel price hikes, increased metro ticket prices, and a surge in electricity tariffs.
Egypt’s decision to sign an $8 billion financial support package with the International Monetary Fund (IMF) has played a crucial role in controlling inflationary monetary policy. While the IMF support has helped stabilize the economy, it has also necessitated the government to raise domestic prices to comply with the terms of the agreement. This has further added pressure on inflation in the country.
Core inflation, which excludes volatile items like fuel and certain food products, is expected to decline to 23.9% in August from 24.4% in July. This indicates a relatively lower rate of inflation for essential goods and services. The declining trend in core inflation suggests a gradual improvement in the overall inflationary environment in Egypt.
Inflation in Egypt continues to be a concern, with government-led price hikes playing a significant role in shaping inflationary trends. While the IMF support package has helped stabilize the economy, it has also led to an increase in domestic prices, contributing to inflation. It is essential for policymakers to strike a balance between addressing budget deficits and ensuring price stability to achieve sustainable economic growth in Egypt. The upcoming release of August inflation data by the state statistics agency CAPMAS will provide further insights into the impact of government-led price hikes on the country’s inflation rate.