Egypt’s inflation cooled for the third straight month in August, falling to 11.2%—its lowest level in over a year. But economists warn the relief could evaporate if the government pushes ahead with electricity and fuel price hikes in the fourth quarter.
The year-on-year drop—from 13.1% in July—was driven mainly by falling meat and poultry prices, according to the Central Agency for Public Mobilization and Statistics. But monthly inflation inched up 0.2%.
Economists project inflation could ease to around 10% by year-end after more than two years of punishing price spikes. Yet they caution that new energy price hikes could derail those gains.
“If fuel, electricity, or medicine prices stay frozen, inflation could close 2025 near 10%,” said Mostafa Shafie, head of research at Arabeya Online, in an interview with Al Manassa.
Government walks a tightrope
Electricity prices were initially slated to rise in September, sources in the Cabinet had told Al Manassa. But Prime Minister Mostafa Madbouly later froze tariffs to avoid an inflationary flare-up.
“The government aims to hold electricity prices flat through December to sidestep another inflation wave,” economist Ibrahim Adel explained to Al Manassa.
Adel warned that a fuel price hike in October or November could drive annual inflation as high as 15%, underscoring the energy sector’s outsized impact on Egypt’s economy.
Egypt has already enacted three fuel hikes in 2024, followed by a fourth in April 2025. The increases are part of Egypt’s commitment to the IMF to cut energy subsidies.
Aya Zoheir, head of research at Zilla Capital who spoke to Al Manassa, said an October fuel hike might land softer than expected due to a favorable base effect: “Fuel prices also rose in October 2024, which cushions the year-on-year comparison.”
Zilla Capital now forecasts inflation will end 2025 between 13% and 14%, balancing currency gains and government price controls against seasonal energy shocks, Zoheir explained.
Last month, the government launched a campaign urging producers and retailers to cut prices, but compliance has been limited.
Rate cuts on the horizon
With three policy meetings left this year, Zoheir expects the Central Bank of Egypt to trim rates by 100–200 basis points, bringing total easing for 2025 to 600–700 basis points. That’s up from earlier forecasts of 500–600.
In late August, the CBE cut rates for the third time this year, lowering the deposit rate to 22% and the lending rate to 23%. The easing cycle began in March 2024.
“The revised easing range is justified by improving external conditions,” said Zoheir. Still, she cautioned that a fuel hike in October could slow the pace.
“This will likely be the final increase to align domestic prices with IMF cost-recovery commitments,” she added, noting that a parallel electricity hike could also delay easing.
Zoheir said even smaller policy shifts, such as VAT changes, can sway the central bank’s stance.
Meanwhile, Shafie expects one or two more cuts by year-end, supported by cooling inflation and stable food prices. He noted that external conditions remain calm, giving policymakers space to maneuver.
He added that a potential 25 basis point cut by the US Federal Reserve would give Egypt’s central bank more room to ease without triggering capital flight.
Adel emphasized that policy hinges on maintaining a positive real interest rate, now near 10%. He expects no more than 200 basis points of cuts across the year’s remaining meetings.
He also underlined the broader benefits of monetary easing: “Lower rates will fuel growth and encourage investment, giving the private sector a needed boost.”
Each 1% cut reduces debt servicing costs by about 80 billion Egyptian pounds ($1.57 billion), he added, calling the government “the primary beneficiary” as the country’s largest borrower.
Exchange rate and risks
The Egyptian pound’s recent rally, pushing the dollar below 48 pounds, has helped reduce inflationary pressures. But analysts caution the rally may be temporary. Aya Zohair highlighted fourth-quarter factors, such as profit-taking and foreign debt repayments, that could limit further gains. Building on this point, Mostafa Shafie predicts the pound will stabilize between 47–48 pounds per dollar, supported by Gulf investment tied to a Red Sea development project.
Offering a slightly different outlook, Ibrahim Adel projects a dollar rate around 49 pounds, with possible fluctuations of up to 5% in either direction. He added that recurring regional instability remains a major risk, warning that geopolitical shocks could reignite currency volatility and complicate efforts to manage inflation.
