Inflation falls to four-month low in July

Latest reading: Inflation slowed for a second consecutive month in July, after resuming its downward trend last month following a three-month blip of increases; consumer prices rose at a softer annual pace of 13.9%, which was down from June’s 14.9%. July's reading was the joint-weakest inflation rate since March. Looking at the details of the release, the fall was largely due to a softer rise in prices for food and non-alcoholic beverages—the largest component in the consumer price index basket. In addition, price pressures for transportation eased, ending three consecutive months of faster price growth following the government’s subsidy cuts on 11 April as part of the IMF-backed reforms. Accordingly, the trend pointed down, with annual average inflation falling to 19.4% in July (June: 20.4%). Meanwhile, core inflation ticked up to 11.6% in July from the previous month's 11.4%. Lastly, consumer prices dropped 0.47% in July over the previous month, coming in below the 0.16% fall seen in June. July's result marked the sharpest fall in prices since May 2024.

Outlook: Our Consensus is for inflation to hover around July’s level in August–September, before trending down in October–December 2025 and through October–December 2026. Past interest rate hikes, a more stable domestic currency and easing private consumption growth will drive the moderation in price growth. That said, the slowdown in inflation will decelerate as the high base effect fades—inflation peaked at 37.9% in September 2023. Overall in calendar year (CY) 2025, inflation will nearly halve from the prior year’s level and should trend down through CY 2028. Our Consensus is for inflation to return to the Central Bank’s current inflation target of 5.0–9.0% in CY 2027. A faster-than-projected increase in the monetary base, a weaker-than-expected Egyptian pound and spikes in food prices pose upside risks.

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