CAIRO (Reuters) – Egyptian inflation is expected to retreat in October from a record high of 38% in September as food price rises moderate, a Reuters poll showed on Tuesday, but Egypt’s battle with inflation seems far from over, analysts say.
The median forecast of 19 analysts polled showed annual urban consumer inflation slipping to 37.1% from 38.0% in September.
Inflation had been accelerating steadily since June, when it reached a record high of 35.7%. The previous high of 32.95% was in July 2017.
“The slight drop in the inflation rate from last month is likely supported by the decision to reduce the retail prices of some staple foods for six months as of mid-October 2023 while exempting them from custom duties,” said Ralf Wiegert of Standard & Poors.
“This will likely help contain inflationary pressures temporarily.”
The government, in its battle against inflation, announced on Oct. 10 that it had agreed with private producers and retailers to cut prices on fava beans, lentils, dairy products, cheese, pasta, rice, sugar, chicken and eggs by 15-25% for six months.
The government on Friday also announced increases in petrol prices of up to 14.3% amid higher global prices and a weakened exchange rate.
“The weakening of the pound in the parallel market suggests broader upward pressure on domestic prices going forward and (a Nov. 3) hike in domestic fuel prices will add to these pressures,” HSBC said in a research note.
Egypt’s currency was allowed to fall by about half against the dollar in the year to March 2023, but since then has remained fixed, despite an Egyptian commitment to the International Monetary Fund to adopt a flexible exchange rate.
The currency, officially at 30.85 to the dollar, has fallen to about 48 to the dollar from 40 pounds before the Gaza crisis broke out on Oct. 7.
“In our view, this is likely to keep real interest rates deep in negative territory in the months to come,” HSBC said.
The central bank, after raising interest rates in August to contain inflationary pressures, left rates steady at meetings on Sept. 21 and Nov. 3. Despite increases of 1,100 bps since March 2022, the lending rate, at 20.25%, remains well below inflation.
A median of five of the analysts surveyed expected core inflation, which excludes fuel and some volatile food items, to drop to 37.2% from 39.7% in September.
The state statistics agency CAPMAS and the central bank are scheduled to release October inflation data on Thursday.
(Polling by Sujith Pai and Susobhan Sarkar; Writing by Patrick Werr; Editing by Bernadette Baum)