Egypt has recorded one of its most significant economic milestones in recent years, as annual urban consumer price inflation fell to 12.8% in February, down from 24% in January.
This sharp deceleration — faster than even the most optimistic forecasts — suggests a turning point for a country that has spent years battling high inflation, currency instability, and structural imbalances.
The fall in inflation is largely attributed to a statistical base effect, reflecting the fact that the sharp price hikes of the past two years are now cycling out of the year-on-year comparisons. In essence, prices are still high, but the rate of increase is slowing because the comparison point from last year was already very elevated. This technical effect has amplified the perceived drop in inflation, making the numbers look rosier than they might feel for everyday Egyptians.
However, it would be short-sighted to credit the base effect alone. Egypt’s economic policymakers have been actively working to bring inflation under control, especially under the watchful eye of international lenders like the IMF. The Central Bank of Egypt has maintained a tight monetary policy, holding interest rates at a high 28.25% for overnight lending and 27.25% for deposits. This strategy has aimed to curb demand-driven inflation by making borrowing more expensive and saving more attractive. While painful in the short term, especially for small businesses and consumers, such measures have been necessary to rein in price pressures and stabilize the currency.
There are broader macroeconomic reforms underway as well. In March, Egypt’s government approved a draft 2025/2026 budget worth EGP 4.6 trillion (around $91 billion), which emphasizes fiscal tightening and reducing the budget deficit. This is part of its broader agreement with the IMF — a program that has unlocked a $1.2 billion disbursement to support the country’s economic reform trajectory. These funds not only ease Egypt’s short-term liquidity constraints but also send a strong signal to investors about the country’s commitment to stabilizing its finances.
From a market perspective, the cooling inflation is a positive signal for both local and international stakeholders. Lower inflation improves consumer purchasing power and helps businesses plan more effectively. For investors, the easing of inflation could pave the way for future interest rate cuts — a move that would reduce borrowing costs and potentially spark more private sector activity. This is particularly crucial for Egypt’s ambitious plans to boost manufacturing, expand exports, and attract foreign investment into infrastructure and energy sectors.
However, the picture is not entirely rosy. Inflation, though easing, remains high by historical standards. The drop also comes at a time when global uncertainty remains elevated — with geopolitical tensions, currency volatility, and disrupted trade routes (including via the Suez Canal) still looming over Egypt’s external balance. Additionally, the country’s debt burden continues to raise concerns, with interest payments consuming a significant portion of public spending.
