Egypt: Inflation rises in April

Daniel Richards - MENA Economist
Published Date: 10 May 2022

Egypt’s CPI inflation rate rose to 13.1% y/y in April, up from 10.5% in March, with food prices a major driver of the acceleration. This was the fastest pace of annual price growth since May 2019 and it exceeded both our forecast (12.0%) and Reuters consensus (11.8%) and makes more rapid tightening by the Central Bank of Egypt more likely at its rate-setting meeting next week. We now anticipate a 300bps hike at the May 19 meeting (from our previous expectation of 200bps) with a further 200bps in June given that inflationary pressures are likely to remain salient through the summer months and the global trend is for tighter monetary policy.

Inflation at multi-year high in April

Source: Bloomberg, Emirates NBD Research

Prices in Egypt were 3.3% higher in April than in March, the sharpest monthly increase since June 2018, with food prices responsible for much of the surge. Egypt is particularly exposed to the knock-on effects of the war in Ukraine with around 80% of its wheat imports sourced from the Black Sea region and bread a staple at every meal. Food inflation was up 26% y/y and 7.6% m/m in April. Other inflationary factors include the depreciation of the pound in March, which went from a long-held price of roughly EGP 15.7/USD to around EGP 18.5/USD, and higher energy costs: in the middle of the month the government announced a 2.9% increase in the cost of 92 octane petrol and a 6.0% increase in 95 octane. While some of these factors are exogenous, core inflation has also been accelerating over recent months, hitting 10.1% in March (April data not yet released).

The CBE has already embarked on its rate-hiking cycle after it surprised with a 100bps hike to its benchmark interest rates in March three days prior to its scheduled meeting (at the same time the currency depreciated from its long-held level as the bank stressed the ‘importance of the exchange rate flexibility’.) This interest rate hike took the overnight deposit rate to 9.25%, but this has since been overtaken by the subsequent acceleration in inflation which has taken real interest rates negative once more, while at the same time the roadmap for global monetary tightening has accelerated. The Federal Reserve hiked rates by 50bps last week, the biggest move higher since 2000, and has signposted more such moves over the next several meetings. With domestic inflation higher than anticipated and the attractiveness of emerging markets diminishing for international investors as rates rise in developed markets, we anticipate that the CBE will also ramp up its rate increases.

Written By:
Daniel Richards, MENA Economist