Downtown Cairo. Image Credit: NYT

Cairo: Egypt’s inflation rate decelerated to its lowest level in over three years thanks to a moderation in food costs, as the central bank is widely expected to hold interest rates while it weighs the impact of recent fuel subsidy cuts.

Consumer prices in urban parts of Egypt rose by an annual 9.4 per cent in June, compared with 14.1 per cent in May, according to the state-run statistics agency, CAPMAS. On a monthly basis, food prices declined 2.2 per cent. The extent of the deceleration was a surprise to many economists, with several including EFG-Hermes’ Mohammad Abu Basha expecting annual inflation to come in around 11 per cent.

“Monthly inflation is set to accelerate in July,” Abu Basha, head of macro research at the Cairo-based investment bank, said in a note published before the data release. “But the annual readings are likely to decelerate,” given the high base of comparison last year when the cuts in fuel subsidies were around double the recent reductions, he said.

The drop could allow the central bank to settle into a holding pattern while it assesses the inflationary impact of subsidy cuts that went into effect this month. Policy makers are meeting on Thursday after lowering rates just once in over a year.

Fuel subsidies slashed

The reductions in the subsidies were the fourth enacted by the government since it began its International Monetary Fund-backed economic program in November 2016. The measures carry potential for the greatest social and political impact in a nation that’s struggled with the costs of the reforms.