Inflation hits 10-month low as food prices continue to fall: Egypt’s annual urban inflation decelerated to 3.4% in August — its lowest level since October 2019, according to Central Bank of Egypt (CBE) calculations (pdf) of Capmas figures. Inflation cooled last month from 4.2% in July. The falling headline rate, which came despite an unfavorable base effect from a drop back in August 2019, came as food prices continued to decline on a monthly basis.

Food prices see sharp fall, transport prices inch up: A sharp 2.6% monthly drop in food and beverages prices for the third consecutive month was the primary reason behind the fall in August’s recorded annual rate. The month-on-month drop in prices across all food items was enough to offset a 4.8% uptick in transportation costs and a 2.4% increase in healthcare expenses, the state statistics agency said.

Core inflation up slightly: Annual core inflation, which strips out volatile items such as food and fuel, rose to 0.8% during the month from 0.7% in July. Monthly core inflation recorded -0.2%, compared with -0.4% in August 2019 and -0.1% in July, the CBE said. The price of core items fell 0.2% during the month, compared to a 0.4% drop in July. 

Will the CBE keep rates on hold on 24 September? Pharos Holding said in a research note that it expects the CBE to keep interest rates unchanged when its Monetary Policy Committee meets on 24 September. The CBE is likely “to assess the impact of the [recent 300 bps] cut and the [other] stimulus packages” before cutting rates further, the investment bank said. Stability in interest rates will help “keep forces balanced between private sector support and attractiveness of Egypt’s real interest rates” to avoid a drop in foreign portfolio investment and carry trade, it added. We’ll be out with our poll of analysts ahead of the MPC meeting next week. 

Forecast ahead: Pharos expects the annual inflation rate to stabilize at 4.5% in September and October, from which point it would fluctuate between 5-6% during the final months of the year and remain well within the 9% (+/-3%) target range during the first half of 2021. CBE Governor Tarek Amer said last week he expects inflation to average around 6.2% during 4Q2020, noting that the figure has held steady within the single-digit range since June 2019 and has remained below 6% since February.