Egyptian inflation eased for the fourth consecutive month in June despite a historic increase in the cost of subsidized bread that feeds a significant portion of the population.
Consumer prices in urban areas rose at an annual rate of 27.5%, down from 28.1% in May, according to the state statistics agency CAPMAS.
On a month-to-month basis, prices grew by 1.6%.
This latest deceleration comes after authorities implemented a 300% hike in the price of subsidized bread on June 1, the first such move since the 1970s.
Although some economists had anticipated an inflationary surge, the impact on overall inflation was minimal due to the relatively small weight of bread in the consumer price index, explained Mohamed Abu Basha, head of research at EFG Hermes.
Food and beverage prices, the largest component of Egypt’s inflation basket, increased by 31.9% year-on-year, compared to 31% in May, and rose 2.6% on a monthly basis.
Despite the ongoing challenges, the rate of inflation has been slowing for eight of the past nine months, even after a significant devaluation of the Egyptian pound in 2024, which saw the currency plummet almost 40% against the dollar.
The reduced inflation rate reflects how the lower value of the pound on the now-stabilized local black market had already been factored into retail pricing strategies.
Also, the country’s central bank maintained its interest rates at an all-time high in May, citing expectations for a significant decline in inflation during the first half of 2025.
Further subsidy reductions are anticipated as Egypt continues its economic reforms following a $57 billion bailout from the United Arab Emirates, the International Monetary Fund, and other international supporters.
Cairo-based EFG Hermes is among the institutions predicting a continued cooling of consumer costs throughout the remainder of the year.
Abu Basha noted that the gradual elimination of fuel subsidies and potential increases in power tariffs are expected to have a relatively minor effect on overall inflation.
However, recent shortages in domestic gas supplies, which caused temporary shutdowns at some fertilizer plants and contributed to widespread power cuts, remain a potential wildcard.
Despite the inflation slowdown, the Egyptian central bank is unlikely to reduce interest rates when it meets next week.
The IMF recently affirmed its agreement with Egypt that maintaining a tight monetary policy is crucial in the short term to bring inflation closer to the central bank’s target.
