Inflation falls to over three-year low in August

Latest reading: Consumer prices were up 12.0% in annual terms in August, following a 13.9% increase in the previous month. Inflation receded for a third month running, falling to the lowest since March 2022, and undershooting market expectations. Relative to the previous month's figures, there were milder price pressures for food and non-alcoholic beverages—the largest component in the consumer price index basket (+2.1% vs +3.4% in July) and transportation (+26.7% vs +41.5% in July); transport price growth notably slowed in August—for a second month running—after rising steeply in April–July due to the government’s subsidy cuts as part of the IMF-backed reforms. Meanwhile, core consumer prices were up 10.7% in annual terms in August, following a 11.6% increase in the previous month. Lastly, consumer prices were up 0.36% in August in month-on-month terms, following a 0.47% increase in the previous month.

Outlook: Average inflation will continue to trend down from its July–September 2023 peak of 37.3% through October–December 2026. Past interest rate hikes, a high base of comparison, a more stable domestic currency and slowing private consumption growth will dampen price growth. That said, our panelists do not see average inflation returning to the Central Bank’s 5.0–9.0% target band until calendar year (CY) 2027, as the downward trend in inflation slows on a fading high base effect. A faster-than-projected increase in the monetary base and wage growth, a weaker-than-expected Egyptian pound, plus extreme weather hurting food production pose upside risks to the outlook. The now-delayed increase in electricity tariffs—another IMF-backed reform—is a further upside risk.

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