Egypt Inflation Shrugs Off Bread Hike in Fourth Month of Easing

(CAPMAS, Bloomberg)

(Bloomberg) -- Egyptian inflation slowed for a fourth month in June, shrugging off the impact of a historic hike in the cost of subsidized bread that feeds a majority of the population.

Consumer prices in urban parts of the North African country grew at the slowest pace since the start of 2023 and reached an annual 27.5%, compared with 28.1% in May, state statistics agency CAPMAS said Wednesday. Prices gained 1.6% month-on-month. 

Food and beverage prices, the largest single component of the inflation basket, increased an annual 31.9%, versus 31% in May. They grew 2.6% on a monthly basis. 

Egyptian consumer prices have been slowing from a record for eight of the past nine months, continuing even after one of the world’s largest devaluations in 2024 saw the pound plunge almost 40% against the dollar. That inflation didn’t surge anew showed how the currency’s much lower value on the now-quelled local black market had already been influencing retailers’ pricing.

The latest deceleration came after authorities increased the price of subsidized bread by 300% from June 1, the first such move since the 1970s. Despite some economists warning of a possible inflationary effect, that was always unlikely due to the tiny percentage the item occupies in the consumer basket used for calculations, according to Mohamed Abu Basha, head of research at EFG Hermes.

Further subsidy reductions are likely as Egypt’s government presses ahead with reforms after a $57 billion bailout from the United Arab Emirates, International Monetary Fund and others helped the country tackle its worst economic crisis in a generation. 

Cairo-based EFG is among those predicting consumer costs will continue to cool for the rest of the year. A gradual phasing-out of fuel subsidies and a possible rise in power tariffs will likely have a “relatively small effect,” Abu Basha said.

One wildcard may come from recent shortages in domestic gas supplies, which caused temporary disruptions at some fertilizer plants in addition to the grueling power cuts Egyptians have been enduring. Economists are monitoring for any follow-through effect on food prices.

June’s slowdown, meanwhile, probably won’t mean the Egyptian central bank will make its first interest-rate cut since 2020 when it meets next week. The IMF said recently it agreed with Egypt that monetary policy needs to remain tight in the short term to bring inflation nearer the regulator’s target.

The central bank kept rates at an all-time high in May, saying it expected a significant inflationary decline in the first half of 2025 due to factors including tighter monetary policy and the adjustment in foreign-exchange rates.

--With assistance from Tarek El-Tablawy and Abdel Latif Wahba.

©2024 Bloomberg L.P.

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