Egypt inflation drops below 30% for first time in 15 months

Reuters/Mohamed Abd El Ghany

Egypt’s inflation rate dropped below 30 percent in May for the first time in 15 months, slowing at a faster rate than most had predicted.

Urban consumer price inflation was 28.1 percent year on year for May, a drop from 32.5 percent in April, the Central Agency for Public Mobilisation and Statistics announced on Monday. A Reuters poll had previously suggested a reading of 30.4 percent.

Food prices fell by three percent month on month, Capmas figures said.

Notable month-on-month decreases included cereals and bread, by 2.5 percent, meat and poultry, by 4.6 percent, dairy products, cheese, and eggs, by 3.9 percent, and vegetables, by 8.7 percent.

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It is the third consecutive month of decreasing month-on-month inflation readings.

Analysts had predicted that inflation would start coming down, with EFG Hermes expecting monthly inflation to reach around 23 percent by the end of the year, said Mohamed Abu Basha, an economist with the company.

Cooling inflation is allowing for increased business activity, according to an S&P Global purchasing managers’ index released last week. The report put inflation at a 38-month low in May, contributing to the highest PMI in 33 months ,of 49.6, closing in on growth territory, which is any index score above 50.

The PMI report said improved access to foreign currency after the float of the Egyptian pound in March wqs also improving sentiment.

Tarek Tawfik, chairman of the Cairo Poultry Group and deputy chairman of the Federation of Egyptian Industries, speaking to AGBI, said that there was “more predictability, and currency that is finally available with very few restrictions. 

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“There is still a great amount of work needed to rebuild trust and confidence, which should take more time. The narrative regarding the reform agenda is promising, but it is now a question of walking the talk.”

The International Monetary Fund  said on Thursday, in a staff-level approval of its third review for an $8 billion loan package agreed in March, that Egypt had “stayed the course to preserve macroeconomic stability through fiscal discipline, tight monetary policy, and a shift to a flexible exchange rate regime. 

“These efforts are beginning to deliver an improved outlook, improved FX availability, inflation starting to slow down, and signs of recovery in private sector sentiment.” 

The IMF reiterated the need for long-term economic reforms.