Inflation in Egypt’s urban areas eased in November, following the break in a fourmonth upward trend seen in October. The slowdown was driven by a contraction in food and beverage prices which make up one-third of the commodity basket used to measure inflation.
The decline in food and beverages inflation helped offset the impact of fuel price hikes implemented in mid-October. November’s inflation reading came at 12.3 per cent year-on-year, down from 12.5 per cent in October. Meanwhile, monthly inflation eased to 0.3 per cent from 1.8 per cent in the previous month, according to data released by the Central Agency for Public Mobilistion and Statistics (CAPMAS).
The drop in inflation would give the Central Bank of Egypt (CBE) room to cut interest rates in its meeting before the year’s end.
At its previous meeting in November, the CBE kept interest rates unchanged, projecting that inflation would inch up toward the end of the final quarter of the year on the back of higher energy prices before starting to ease in the second half of 2026 to converge toward its target.
Egypt raised fuel prices by an average of 13 per cent in October, marking the second increase this year.
An EFG Hermes Research note described the slowdown as a “positive surprise” noting that the reading was below its forecast of 14.1 per cent and less than the Reuters poll median of 13.1per cent.
According to EFG Hermes, the slowdown was almost entirely driven by a deceleration in annual food inflation largely due to a sharp 14.9 per cent month-on-month drop in vegetable prices, the steepest fall in three and a half years.
While declines in vegetable prices are typical at this time of year, the magnitude of the drop, particularly following fuel price increases in mid-October, was “surprising,” EFG Hermes said.
Sarah Saada, senior macroeconomic analyst at CI Capital, echoed similar views in comments to Al-Ahram Weekly, noting that food remains the heaviest component in the inflation basket, with a weight of about 30 per cent, making it the most influential factor behind price movements.
Saada said the slowdown in inflation raises questions about the extent to which fuel price increases are passed to consumer prices.
Fuel price hikes typically affect transportation costs, she explained, but their impact this time was not strong enough to push food prices higher. She added that fuel price effects do not necessarily appear directly or evenly across all goods, particularly since transportation services do not carry the same weight as consumer goods within the inflation basket.
Saada attributed the weak pass-through from fuel prices to food prices to the seasonal nature of food items and fluctuations in supply and demand. During periods of abundant harvests, prices can fall despite higher transportation costs, as ample supply offsets increases linked to gasoline or diesel prices.
Saada described such volatility as normal and possible at any time of the year, stressing that it is not necessarily tied to economic reforms.
“As a result, there is still room for a gradual rate cut of between 0.5 and one per cent in the short term, with cumulative cuts potentially reaching around six per cent by the end of 2026, should economic indicators continue to improve,” Saada said.
EFG Hermes expects a relatively stable inflation reading in the first quarter of 2026 before a slowdown begins in May.
However, it highlighted one of the key uncertainties for inflation dynamics next year: the adjustment of old rent contracts once government committees complete their work on reclassifying existing rent levels. This adjustment is likely to materialise at some point during the second quarter of next year.
The unexpected slowdown in inflation prompted EFG Hermes to tilt toward a one per cent rate cut at the Monetary Policy Committee’s meeting on 25 December after previously assigning equal probability to a cut or a hold.
Pharos Research has also adopted a forecast of a one per cent rate cut at the central bank’s upcoming meeting, which would raise total rate reductions in 2025 to 7.25 per cent.
In sum, the sharp and unexpected decline in food prices absorbed the shock of fuel price increases, slowed inflation more than anticipated, and opened the door for the central bank to cut interest rates.
While higher rates remain one of the central bank’s key tools to contain inflation, stimulating economic activity often requires lower borrowing costs to enable producers to finance production and consumers to borrow for spending.
* A version of this article appears in print in the 18 December, 2025 edition of Al-Ahram Weekly
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