Egypt's Inflation Expected to Ease Despite Price Hikes, IMF Support

Egypt, the most populous country in the Arab world, is anticipated to experience a fifth consecutive month of declining inflation in July, despite recent price increases in food, tobacco, and fuel. This trend is attributed to the International Monetary Fund's (IMF) efforts to control monetary policy, according to a recent Reuters poll.

In March 2024, Egypt signed an $8 billion financial support package with the IMF, aiming to stabilize its economy and manage inflationary pressures. This agreement, however, necessitates raising domestic prices for various goods and services. The Egyptian government has been implementing measures to address its budget deficit, which reached 505 billion Egyptian pounds ($10.27 billion) in the fiscal year ending June 30, 2024.

As part of these efforts, the government increased the price of subsidized bread by 300% on June 1, 2024, and raised fuel prices by up to 15% on July 25, 2024. Despite these price hikes, analysts predict a slowdown in inflation, primarily due to the base-year effect. Aya Zoheir of Zilla Holding financial consultancy noted that inflation in July 2023 was 36.5%, providing a high baseline for comparison.

A survey of 18 analysts forecasts that annual urban consumer inflation will decrease to a median of 26.6% in July, down from 27.5% in June. Carla Slim of Standard Chartered commented on the situation:

"We forecast July CPI to slow, despite energy subsidy reform, which is set to drive monthly inflation momentum as Egypt increases fuel prices gradually, aiming to achieve cost recovery by end-2025. We are watching for upside risks to CPI due to second-round effects, if other goods and services are repriced higher due to higher commodity prices."

The government's price adjustments are ongoing, with metro ticket prices increased on August 1, 2024, and further hikes expected in the coming months.

It's worth noting that Egypt's economy heavily relies on agriculture, tourism, and remittances from Egyptians working abroad. The country is the world's largest importer of wheat, making it particularly sensitive to global food price fluctuations. The Central Bank of Egypt, established in 1961, plays a crucial role in implementing monetary policies to manage inflation and stabilize the economy.

Egypt has been implementing economic reforms since 2016, aiming to reduce its debt-to-GDP ratio to 75% by 2026. The country's external debt reached $157.8 billion in March 2023, highlighting the importance of these ongoing economic measures.

The state statistics agency CAPMAS is scheduled to release June inflation data on August 8, 2024, which will provide further insights into the country's economic situation.