Inflation in Egyptian Cities Drops to Lowest Level Since 2022 Amid Economic Stability
The inflation rate in Egyptian cities has significantly declined, reaching its lowest level since March 2022, according to official data from the Central Agency for Public Mobilization and Statistics (CAPMAS).
According to the report, the annual urban consumer inflation rate fell to 12.8% in February, down from 24% in January. This decline exceeded analysts' expectations, which had predicted a drop to 14.5%.
On a monthly basis, inflation decreased to 1.4% in February, compared to 1.5% in January. This was mainly attributed to an 8.2% drop in vegetable prices, stability in water, electricity, and gas prices, and slight increases in grains and bread (0.8%), meat and poultry (3.2%), and fruits (3%).
Factors Behind the Decline and Its Impact on Monetary Policies
The sharp decline in inflation is due to several factors, including the base effect and the stabilization of the exchange rate, which has reduced the direct impact of currency fluctuations on local prices. Additionally, measures taken by the government and the central bank have contributed to market stabilization and easing inflationary pressures.
This drop in inflation creates an opportunity for a potential interest rate cut, especially as the inflation rate approaches the official target of 7%, giving policymakers room to reconsider monetary policies to support economic stability.
Overview of Inflation in Egypt
Since early 2022, inflation in Egypt has surged due to the global economic challenges, which led to the withdrawal of billions of dollars in foreign investments from Egyptian treasury bonds. Inflation peaked at 38% in September 2023 before starting to decline in recent months.
Economic analysts anticipate a continued gradual decrease in inflation rates in the coming months, which may lead to interest rate cuts ranging from 50 to 100 basis points, potentially boosting investment and economic activity.
Economic Reforms and Their Impact on Inflation
Several economic reforms and policy measures have contributed to controlling inflation. These include raising interest rates by 600 basis points throughout 2023, as well as Egypt’s agreement on an $8 billion financial support package with the International Monetary Fund (IMF), which helped restore financial stability. Additionally, data from the Central Bank of Egypt indicate that the money supply (M2) increased by 32.1% by the end of January, reflecting ongoing changes in monetary policy and its impact on inflation trends.
The decline in inflation in Egypt is a positive development that signals an improvement in economic conditions and relative price stability, supported by effective monetary and financial policies. If this trend continues, upcoming decisions on interest rate cuts could foster a more stable investment environment and further support overall economic growth.
