Ahmed Kamel – Egypt Daily News
Egypt’s urban inflation rate continued its downward trajectory for the fourth consecutive month in September, offering a sign of easing price pressures in the wake of sweeping economic reforms and international financial support.
According to data released by the Central Agency for Public Mobilization and Statistics (CAPMAS), annual urban consumer inflation slowed to 11.7% in September, down from 12% in August. This deceleration was largely driven by year-on-year declines in the prices of meat and vegetables, sectors that had seen sharp increases in previous years.
However, on a monthly basis, inflation picked up pace, accelerating to 1.8% in September from 0.4% in August. This rebound was attributed to a stronger uptick in certain food categories, indicating that while the broader trend is improving, inflationary pressures remain uneven.
Egypt’s inflation peaked at a historic high of 38% in September 2023, following years of macroeconomic shocks, currency devaluations, and global commodity disruptions. The turning point came in March 2024, when Egypt secured a $57 billion rescue package in collaboration with the International Monetary Fund (IMF), which included structural reforms aimed at stabilizing prices and restoring investor confidence.
Monetary Easing Cycle Gains Momentum
In response to the cooling inflation, the Central Bank of Egypt (CBE) has embarked on a monetary easing path, cutting interest rates four times since the beginning of 2025, with cumulative reductions totaling over 600 basis points (6%).
As of the latest data, the real interest rate — calculated by subtracting inflation from the nominal rate — stands at approximately 9%, one of the highest among emerging markets, reflecting the central bank’s cautious approach to maintaining price stability while supporting growth.
Improved Inflation Outlook for 2025 and Beyond
Reflecting the recent easing trend, the CBE revised its inflation forecast for 2025, lowering its estimate for the average annual rate to around 14%, down from an earlier forecast of 15%. The central bank attributed this optimism to the “broad-based monthly decline” in inflation and fading effects from previous external and domestic shocks.
Projections now suggest inflation will continue to slow, reaching a range of 12% to 13% by the third quarter of 2025. Longer-term, the CBE is targeting a more sustainable range of 5% to 9% by Q4 2026, with ambitions to bring inflation further down to 3% to 7% by Q4 2028 levels not seen in over a decade.
Risks Remain on the Horizon
Despite the positive indicators, several risks could challenge the disinflationary path. A planned increase in fuel prices expected later this month as part of IMF-backed subsidy reforms could reintroduce upward pressure on inflation if not managed carefully, according to Bloomberg.
The central bank has also warned of both domestic and external risks to its inflation outlook, citing the potential for administratively set prices to exceed expectations, and the ongoing geopolitical instability in the region, particularly tensions related to the Gaza conflict and Red Sea trade disruptions.
Policy Balancing Act
Egypt’s economic authorities now face a delicate balancing act: continuing to reduce inflation while maintaining enough policy flexibility to stimulate growth and protect vulnerable populations from any new cost-of-living shocks.
With global markets watching closely, Egypt’s ability to maintain this course amid both internal pressures and external uncertainties will be key to restoring economic stability and achieving sustainable growth.
