Beltone:Higher inflation in July in line with expectations

10, August 2023

Egypt’s annual headline inflation accelerated to 36.5% in July from 35.7% in June, which is in line with our estimate. The annual rate reflects a monthly inflation of 1.9%, down from 2.1% in the previous month, which again was mostly driven by food & beverage (up c. 2% MoM and contributing 0.8 ppts to the headline figure) and tobacco (up c. 8% MoM and contributing 0.3 ppts). Healthcare prices also saw their first notable increase since November, with the sub-index increasing c. 4% MoM and contributing 0.3 ppts to the monthly inflation. Overall, no major surprises in July’s print — retail prices did suggest more aggressive movements in vegetables, tobacco, and sugar, but this could still reflect in August.

Expect maintained rates, unless currency dynamics change

Despite the relative moderation in food inflation over the past couple of months (c. 2% vs an average c. 4% in March to May), we believe inter-seasonal supply shocks

in some commodities and the potential revision of energy prices could renew pressures in the coming months. Moreover, we believe the short-term inflationary path remains difficult to predict as supply shocks are likely to remain until we restore a fully functional FX market. Our base case is for the CBE to maintain interest rates in its upcoming meeting on 21 September. The successful close of the recently announced $1.9bn asset sale transactions and the subsequent re-engagement with the IMF, however, could trigger some moderate movement in the currency, which would require additional tightening, in our view. Under such scenario, we would expect the CBE to hike rates by 150-200 bpts in September/October.