The reading is well below the targets the Central Bank of Egypt (CBE) set at seven percent (±2 percent) in the fourth quarter of 2024. Consequently, the CBE extended the life span of this target to be achieved in the fourth quarter of 2026. This comes after almost three years of the tightening cycle of the monetary policy adopted by CBE since March 2022 when the Russian-Ukrainian war sparked.

Since then, the CBE has hiked the key interest rates by 19 percent (1900 basis points), of which eight percent (800 bps) were applied in 2024.

CBE attributed the action to its gradual advance towards implementing a fully fledged inflation targeting regime. It will also allow for more room to weather price shocks without requiring further stringent monetary tightening.

Meanwhile, CAPMAS attributed this acceleration to the significant 14 percent drop in vegetable prices, along with declines in dairy products, fish, and meat. However, several sectors saw price increases, notably phone and fax services, which rose by 11 percent, and fruit prices, which climbed by 7.5 percent.

The monthly inflation rate remained stable, recording 0 percent in December 2024, compared to -0.1 percent in November 2024. The food and beverage sector experienced a 1.7 percent decline due to falling prices of fish, meat, dairy, and vegetables. Conversely, the clothing and footwear sector saw a one percent rise.

CAPMAS data also showed a 0.9 percent increase in the housing sector, driven by higher rents, while healthcare costs surged by 3.7 percent. Transportation and telecommunications also experienced increases of 0.5 and 10.2 percent, respectively.

The food and beverage sector recorded a 19.2 percent increase year over year, with notable price hikes in grains, meat, and dairy products. The healthcare sector saw the most significant increase, at 35.0 percent, primarily due to rising medical equipment costs.

Overall, the latest data not only reflects ongoing economic challenges but also indicates some stabilization in inflation rates, providing a mixed outlook for Egypt's economy moving forward.

Inflation repercussions
 

Following its Monetary Policy Committee (MPC) final meeting for 2024, held in December, the CBE attributed the already-existing high inflation rates to several factors, including the build-up of external imbalances, fuelled by a surge in global food prices throughout 2021, imported inflation, and sizeable portfolio outflows following the outbreak of the Russian-Ukrainian war. It also justified that by citing the domestic supply shocks arising from market distortions and unanchored inflation expectations.

CBE also noted that Egypt's fiscal consolidation measures tightened its fiscal stance and placed debt on a downward trajectory. 

It is worth noting that the latest projections released by the International Monetary Fund (IMF) indicate a significant drop in the country’s inflation to 16 percent by the end of the current FY2024/2025, which ends on 30 June 2024.

The upcoming meeting of the MPC is scheduled for 20 February.

“These developments, along with exchange rate depreciation, drove inflation above the target range, with annual headline inflation peaking at 38 percent in September 2023, before declining to 25.5 percent in November 2024,” the CBE elaborated.