Egyptian inflation eased from a record high to its lowest level in four months ahead of December’s presidential elections.
Price growth in urban parts of Egypt slowed to an annual 35.8% in October, from 38% the month before, according to figures released Saturday by the state-run statistics agency. It’s the lowest rate since June, according to Bloomberg calculations.
On a monthly basis, inflation slowed to 1% from 2% in September.
Inflation has been bearing the effects of three devaluations of the pound since early 2022, and bouts of weakness in the parallel currency market may continue to feed into consumer prices. The upshot is that interest rates will likely soon have to rise further, according to Goldman Sachs Group Inc., after a pause at the central bank’s last two meetings.
“The weakening of the pound in the parallel market suggests broader upward pressure on domestic prices going forward,” Goldman analysts including Kevin Daly said in a report. “This is likely to keep real interest rates deep in negative territory in the months to come and, in our view, create further distortions in domestic savings and investment pattern.”
The pound has been trading at local banks close to 31 per dollar for months, far below the rate of 46 at which it changed hands in recent days on the local black market.
The cash-strapped country needs to allow further depreciation to complete delayed reviews of its $3 billion rescue program from the International Monetary Fund. But policymakers will likely hold off on another currency move until after the Dec. 10-12 elections, in which President Abdel-Fattah El-Sisi is all but certain to win a third term.
In June, the Egyptian leader appeared to reject another imminent devaluation, warning of the toll rising prices would take on Egypt’s 105 million population.
Egypt’s credit score was lowered by Fitch Ratings deeper into junk territory this month. The decision followed downgrades to a similar level by other agencies, which cited concerns including its high external-financing requirements and delays in enacting economic reforms.
Authorities last month began an initiative jointly with the private sector to reduce the prices of essential goods.
--With assistance from Abdel Latif Wahba.
Author: Mirette Magdy and Tarek El-Tablawy