Egypt's Inflation Stalls, Paving Way for More Rate Cuts

Egypt’s inflation rate held steady in December, a development that could give the central bank the confidence to continue cutting interest rates in 2026.

The state statistics agency, CAPMAS, reported Saturday that urban consumer price growth was 12.3% year-over-year, matching the previous month's figure. On a month-over-month basis, inflation slowed slightly to 0.2% from 0.3% in November.

Inflation's Path From Record Highs

This stability is a key metric for the Middle East's most populous nation, which has been working to control price pressures that peaked at a record 38% in September 2023. The subsequent economic turmoil led to a $57 billion global bailout package the following year.

While the headline inflation number has been cut by more than half over the last 12 months, several factors have prevented it from falling into the single digits. These include recent cuts to subsidies on items like fuel, backed by the International Monetary Fund, and a legal amendment that raised rents for millions of properties.

Despite these pressures, the central bank of Egypt anticipates a general easing of consumer price growth throughout 2026. This outlook holds even with ongoing challenges from non-food inflation and global geopolitical tensions. Authorities have also signaled that local fuel prices will not be increased again before October.

Food Prices and Seasonal Pressures

Food and beverage prices, the largest component of the inflation basket, climbed 1.5% annually in December. However, they registered a 0.7% decline on a monthly basis.

Grocery prices could face temporary upward pressure as Ramadan approaches. The Muslim holy month, starting in mid-February, is typically marked by evening feasts and family gatherings that lead to a surge in household spending.

Monetary Policy Easing in Focus

The slowdown in inflation over the past year has already allowed Egypt’s central bank to pivot from its aggressive tightening cycle. It has delivered a combined 725 basis points in interest rate cuts across five meetings, moving away from a record high.

These rate reductions are considered essential for two main goals:

• Encouraging investment from the private sector.

• Reducing the government's interest payments, which consume a large portion of state spending.

The central bank’s benchmark deposit rate currently stands at 20%. The next monetary policy decision is scheduled for February 12. Looking further ahead, Goldman Sachs Group Inc. forecasts an additional 700 basis points of rate cuts in 2026.