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Egypt's Annual Inflation Slows To 31.2% In January Amid Looming Devaluation

Prices rose by 1.7% in January compared to December, up from 1.2% in the previous month.
11.02.24 | Source: Forbes Middle East

gypt's headline inflation fell to 31.2% in January from 35.2% in the previous month, marking its fourth consecutive decline after reaching a historic high of 38% in September.


Egypt's inflation

Increases in the cost of food and beverages, the largest single component of the inflation basket, fell to 47.2%, according to Egypt's statistics agency CAPMAS.


Prices rose by 1.7% in January compared to December, up from 1.2% in the previous month.


A median of 18 analysts had forecasted Egypt's annual inflation to slow to 32.5% in January, according to a Reuters poll.


The decline in inflation comes as the Central Bank of Egypt (CBE) raised its overnight interest rates last week by 200 basis points (bps), a move to contain inflation. The bank hiked the lending rate to 22.3% and the deposit rate to 21.3%, its Monetary Policy Committee said in a statement.


The bank's decision to hike rates came unexpectedly as the median forecast in a Reuters poll of 16 analysts suggested that the central bank would hold rates steady.


While core inflation has continued to decelerate over the past few months, CBE said recent developments indicate higher-than-expected monthly dynamics and sustained inflationary pressures. This is reflected by persistent non-food and food inflation alongside prolonged supply-side pressures.


"Addressing the issue of inflation is essential for economic stability and decreasing the suffering of the people and those with limited income and the vulnerable," the IMF said last week on Egypt's economy.


EGP devaluation

The Egyptian market is anticipating another devaluation of the Egyptian pound against the US dollar in 2024, Egypt's State Information Service (SIS) said in January.


This potential devaluation would mark the fourth time Egypt has devalued its currency since March 2022, which has resulted in a depreciation of approximately 70% against the USD.


The upcoming devaluation is aimed at increasing exchange rate flexibility, which is part of Egypt's commitments under its $3 billion loan program with the IMF, Egypt's state-owned media, Al Ahram reported last week.


Soaring inflation

SIS lowered its projections for the average rate of Egypt's annual inflation to 26.7%, down from the 27.4% it expected a month prior, according to a January report.


Egypt is anticipated to suffer the third-highest inflation rate in the MENA region in 2024 after Lebanon, which expects 115%, and Iran at 36.8%.


SIS added that Egypt's inflation is set to be the highest in the region through 2028.