The pace of inflation in Egyptian cities continued to slow down in June for the fourth consecutive month, falling to 27.5% year-on-year compared to 28.1% in May, according to data from the Central Agency for Public Mobilization and Statistics released on Wednesday. On a monthly basis, consumer prices increased by 1.6% in June, compared to a contraction of 0.7% in May, which marked the first price decrease since June 2022 and the largest contraction rate since mid-2019.
Mohamed Abu Basha, chief economist at EFG Hermes, stated that the figures aligned with expectations at 27.5%, adding that the impact of raising the price of subsidized bread "was limited," and thus "annual inflation rates will continue to decline."
**Support System**
At the end of May, the government raised the price of subsidized bread by 300%, the first increase in more than three decades. Egypt increased the value of subsidies for bread and food commodities in its budget for the upcoming fiscal year by about 5% to 134.2 billion pounds.
In recent years, the Egyptian government has been reducing subsidies on many essential services and goods but has avoided cutting subsidies on bread due to its sensitivity in the Arab country with the largest population. Egypt currently allocates 150 loaves of subsidized bread per person monthly since the smart card system was implemented in April 2014. The government allocated 596 billion pounds for the support system in March as part of the upcoming budget (2024/2025) to help alleviate the burden on middle and low-income individuals affected by the rising inflation rates and the depreciation of the local currency.
Since the beginning of this year, Egyptians have faced increased prices for metro tickets, which are the most popular means of transportation in the capital Cairo and its suburbs, home to over 20 million people. This was followed by announcements of increased prices for landline internet and mobile phone services, as well as rises in electricity prices and construction materials, specifically cement and steel.
**Interest Rates**
The Central Bank of Egypt is expected to hold its fifth meeting of the year next Thursday to discuss interest rates, after raising them by 600 basis points in an extraordinary meeting in March to curb inflation and allowing for the adjustment of the exchange rate for the first time in 14 months, reaching around 50 pounds to the dollar before settling at 48.13 pounds per dollar last night.
As a result, the "Central Bank" has increased interest rates by 1,900 basis points since March 2022 when it began depreciating the pound. Following the Central Bank's actions in March and today’s inflation figures, the real interest rate - which is the nominal interest rate minus the inflation rate - in Egypt stands at negative 0.25%.
