The annual urban consumer price inflation rate decreased to 33.3% in March from 35.7% in February, despite the local pound’s depreciation last month, according to data released by the Egyptian government.

The price increase was considerably less than the 36.6% consensus estimate from LSEG.

Experts advise caution because they believe that the systemic factors that are driving up inflation are still in place and that price pressures will continue to exist.

“Egypt’s headline inflation rate slowed to 33.3% y/y in March despite the near 40% fall in the pound’s official exchange rate last month. That said, the effects of the currency fall will continue to feed through over the coming months and keep inflation elevated throughout the rest of 2024,” James Swanston, MENA economist at Capital Economics, said in a note.

In March, the monthly inflation rate was 1%, down from 11.4% in February. Food and beverage prices, which make up the greatest portion of the CPI basket, decreased from 44.9% in February to 50.9% in March.

The possibility of more minimum wage increases and subsidy reductions, according to HSBC Bank economist Simon Williams, indicates that underlying inflationary pressures will continue.

“Additional price controls for the month of Ramadan may have also contributed to lower food inflation in March, which fell from 16.7% m-o-m to just 0.7% m-o-m, and accounted for much of the miss in our forecast,” he said in a note.

Swanston predicts that as a result of the weaker pound and the implemented price increases, such as the 9–22% increase in local fuel prices this month, inflation will continue to be high for the remainder of the year and remain above 25% year over year by year’s end.

On March 6, the Egyptian central bank permitted the pound to depreciate by almost 40% about the US dollar. The devaluation, which was a prerequisite set by the IMF, enabled the troubled nation to access an expanded USD 8 billion financial support programme.

As part of its pledge to the Fund to end subsidies, the government increased fuel prices on March 22 as well.

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The inflation rise preceded the recent currency depreciation. After a year of stability at 30.85, the central bank allowed the Egyptian pound to plunge to 50 to the dollar.

The consensus February inflation forecast by 14 analysts was 25.1%. Egypt’s inflation rate fell from September 2023’s record 38.0% before February 2024.

Prices jumped 11.4% in February, up from 1.6% in January. Food costs rose 15.9% from 1.4% in January.

Despite the advantageous base year contribution of -5.5%, Allen Sandeep of Naeem Brokerage said that Egypt’s annual reading rose sharply due to a surge in monthly inflation of both food (F&B) and non-food items.

Recently, Egypt’s Finance Minister Mohamed Maait informed about the Northeast African nation signing a support package with the IMF to reduce its budget deficit. Egypt’s main budget surplus would exceed 3.5% in the July fiscal year, he told in a press conference.

The primary surplus excludes interest payments, which accounted for over half of the expenditures in the seven months to the end of January and left Egypt in deficit.

In February 2024, the finance ministry predicted a 2.5% primary general budget surplus for fiscal 2023–24.

Egypt signed an IMF-led agreement to sell Ras al-Hikma development rights to Abu Dhabi for USD 24 billion. Maait stated that the World Bank provided USD 3 billion.

“The nice element is the Ras al-Hikma contract, a not-small percentage of which will enter the general budget in pounds,” Mohamed Maait told reporters. Ras al-Hikma ensures a lower deficit than planned.

Suez Canal and other revenue dropped, but expenditure rose due to a falling currency and rising interest rates on Egypt’s obligations, according to Maait.

As per the analysts, the Egyptian Central Bank’s move to liberalise the exchange rate of the local currency against the US dollar, along with the rise in interest rates by 6% is expected to have both positive and negative effects on the Northeast African country’s economy.

An immediate positive result here will be the anticipated dollar flows into the Egyptian market, with experts pointing to the importance of good management to achieve the utmost benefit for the overall economy. However, on the other hand, Egypt may continue reeling under the burden of the high inflation rate caused by the currency devaluation.

“The demand for the dollar is expected to continue until the release of goods seized at Egyptian customs and ports, which some estimated at about USD 8 billion,” stated media outlet Asharq Al-Awsat.

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