Egypt’s headline inflation rate fell to its lowest in nearly four years, dropping to 8.7% in July from 9.4% in June, official figures from the CAPMAS statistics agency showed.

Egypt is nearing the end of a three-year International Monetary Fund economic reform programme that saw inflation rise to a high of 33% in 2017.

July’s rate defied analysts’ expectations. It followed a fresh round of fuel subsidy cuts that pushed domestic fuel prices up by 16% to 30%. “It seems that the energy price hikes may have had a smaller effect than many anticipated. But inflation in most other price categories eased too, suggesting that underlying price pressures are weakening,” said William Jackson, chief emerging markets economist at Capital Economics.

Scaling back fuel subsidies that strained Egyptian budgets for decades was a key plank of the $12 billion IMF reform package signed in 2016, when Egypt’s economy was struggling to recover from the turmoil that followed its 2011 uprising.

The changes were expected to push up prices for transport, food products and other goods. “Inflation increased on a month-on-month basis, which reflects the rise in fuel prices, while the year-on-year figure eased, reflecting the favourable base effects,” said Nadene Johnson, an economist at NKC African Economics.

In July 2018, Egypt’s headline inflation rate was 13.5%.

“It’s great news for the markets because it reinforces hopes of interest rate cuts in August. I think the central bank now has enough room to restart its monetary easing policy going forward,” said Allen Sandeep, head of research at Naeem Brokerage.

Reuters