Macro Analysis /

Egypt inflation picks up in April, interest rates to remain unchanged

  • Inflation for total Egypt rose to 5.9% YoY and 1.6% MoM as demand picks up during the month before Ramadan

  • Inflation was driven by its heaviest basket constituents: Food, Utilities and Health care

  • Projections: Inflation to stay within 6.5- 7% until November 2020; and CBE to hold interest rates constant

Pre-Ramadan demand takes Food prices up

Inflation for total Egypt accelerated to 5.9% YoY in April 2020, from 4.6% YoY in March. This acceleration is explained by the rise in demand for food items that usually occurs on the month preceding Ramadan. This demand surge was reflected on Food & Beverages and Tobacco categories MoM. 

Inflation was driven by its heaviest constituents: Food, Utilities and Healthcare

Both on an annual and monthly level, April inflation was driven by non-food items as a bulk, however when breaking down this group, Utilities and Healthcare are not a match for the effect that Food & Beverages category has on the overall inflation figure. For 4 months now inflation reading has been less and less impacted by food items, since the fruit and beverages volatility has been tamed relative to 2018 and 2019 fluctuations. 

Inflation to remain within 6.5-7% before picking up in November 2020

According to our forecasts, inflation should end FY2019/20 with an average of 5.4% YoY and end CY2020 at an average of 6.3% YoY remaining in the single digit zone, and within the CBE’s monetary policy target of 9% (+/-3%) all through 2020 and 1H2021. It is notable though that the restrictions on trade coupled with the rising pressures on the EGP during the prolonged Covid-19 lockdowns are likely to create inflationary pressures. 

Rates to be maintained on May 14th 

The CBE cut interest rates by 300 bps in an emergency meeting in early March, in an attempt to protect the economy from the Coronavirus global blowout. As the situation persists, we expect the CBE to maintain interest rates to assess the impact of the cut and the stimulus packages, before deciding whether more cuts are needed.