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Egyptian Inflation Slowed for First Time Since July

(Egypt's statistics agency)

(Bloomberg) -- Egypt’s inflation rate eased to its lowest level in almost two years, reversing a three month acceleration trend despite a recent cut in fuel subsidies.

Annual consumer prices in urban areas rose 25.5% in November versus 26.5% the month before, state statistics agency CAPMAS said Tuesday. It’s the lowest since December 2022, according to data compiled by Bloomberg.

The monthly inflation rate was 0.5%, down from 1.1% in October. Food and beverage prices, the largest single component of the inflation basket, climbed an annual 24.6% versus 27.3% in October. 

Core inflation — the gauge used by the central bank which strips out volatile and regulated items — eased to 23.7%.

While there were inflationary pressures from recent hikes in the prices of fuel and cigarettes, those were partly offset by a 1.9% month-on-month decline in food costs and a favorable base effect.

October’s fuel increase, the third this year, is part of an International Monetary Fund-backed program that aims to improve government finances and revamp an economy emerging from a foreign-currency crunch. A key plank of the $8 billion agreement is enacting a flexible exchange rate, following a roughly 40% devaluation in March.

After being steady for most of the proceeding months, the pound began weakening more significantly in early November and is now trading around a record low of 50.5 per dollar.

“The slide in the pound does raise questions about the impact on inflation, but it’s still too early to say whether there will be a lasting effect,” said Farouk Soussa, Goldman Sachs Group Inc.’s Middle East and North Africa economist. 

The IMF and Egypt are discussing the latest review of the loan program. The Washington-based fund last month said there’d been “substantial progress” in talks, but added that more consultations were needed before it could unlock a $1.3 billion tranche.

Despite the latest inflation slowdown, the central bank may hold interest rates at 27.25% for a sixth consecutive policy meeting when it next convenes on Dec. 26. Most economists predict Egypt will refrain from cutting rates until the first quarter of next year.

--With assistance from Tarek El-Tablawy.

(Updates with core inflation and comparison with)

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