Cairo (The Palestine Telegraph Newspaper) – A Reuters poll of economists projects Egypt's headline inflation rate will decline to 11.7% year-on-year in January 2026 from 13.9% in December, reflecting tighter monetary policy and currency stabilisation measures. Core inflation excluding volatile food and energy prices is expected to dip to 10.2% from 12.1% last month. The forecasts come ahead of official data release on 12 February, with analysts citing base effects and subsidy reforms as key factors. Central bank officials maintain their 2026 target range of 5-10%.
Economists surveyed between 29 January and 4 February based projections on monthly consumer price index data from the Central Agency for Public Mobilisation and Statistics (CAPMAS). The poll of 14 forecasters showed median headline inflation at 11.7% with a range of 10.9-12.5%. Food inflation, which comprises 35% of the basket, is projected to moderate to 14.2% from 16.8% as harvest pressures ease.
Factors driving projected January inflation slowdown
Tighter monetary conditions following the Central Bank of Egypt's (CBE) 800 basis point policy rate hike to 27.25% in October 2025 contributed to the expected deceleration. Real interest rates turned positive for the first time since 2022, reducing demand pressures. The Egyptian pound stabilised around EGP 50.8 per dollar after IMF-mandated flotation in March 2024, limiting imported inflation pass-through.
Base effects play a significant role, with January 2025 recording 28.4% inflation during peak post-flotation adjustment. CAPMAS revisions to seasonal adjustment factors also temper year-on-year comparisons. Government subsidy rationalisation on fuel and electricity reduced fiscal pressures but added 1.2 percentage points to December CPI.
Core inflation trends and underlying pressures
Core inflation excluding food and fuels forecasts 10.2% year-on-year, down from 12.1%, signalling broad-based disinflation. Services inflation eased to projected 9.8% from 11.3%, reflecting slower wage growth in formal sectors. Rent components stabilised after 2024 indexation spikes tied to property tax reforms.
Non-food non-energy pressures persist from administered prices. Water tariffs rose 15% in Q4 2025 per multi-year adjustment plan agreed with IMF. Public transport fares increased 10% in January under cost-recovery measures. Private education fees, 8% of core basket, face 12% hikes for 2026/27 academic year.
Food inflation outlook and seasonal factors
Food inflation projection of 14.2% reflects harvest timing and import dynamics. Winter vegetables benefit from domestic supply growth following summer shortages. Wheat import costs stabilised after Black Sea corridor agreements, though poultry feed prices remain elevated 18% year-on-year.
CAPMAS preliminary field surveys indicate citrus and potato prices down 8% month-on-month entering January. Livestock prices peaked pre-Eid al-Adha but softened post-festival. Government strategic reserves released 200,000 tonnes of subsidised baladi bread flour, capping bakery input costs.
Central bank policy stance and rate outlook
CBE Governor Hassan Abdalla signalled potential 200 basis point cut at 12 February Monetary Policy Committee meeting if January data confirms trajectory. Current 27.25% deposit rate yields 12% real return above 5-10% target midpoint. Overnight interbank rates stabilised at 26.8%, indicating ample liquidity post-T-bill auctions.
IMF Stand-By Arrangement reviews endorse gradual easing conditional on sustained single-digit trajectory by Q3 2026. March 2024 $8 billion facility requires net foreign reserves reaching $32 billion, achieved December 2025 with $34.1 billion coverage.
Fiscal consolidation measures supporting disinflation
2025/26 budget targets primary surplus of 4% GDP through revenue-led consolidation. VAT gap collection improved 22% via digital invoicing mandates for 80% of taxpayers. Excise duties on tobacco and luxury goods generated EGP 45 billion against EGP 38 billion revised estimate.
Subsidy bill contracted to 3.8% GDP from 7.2% pre-reform, with bread subsidies cut 25% via expanded smart card targeting. Fuel price formula links diesel to 10% above Brent minus fixed margin, implemented quarterly. Electricity tariffs tiered 15-40% hikes for non-subsidised households.
Currency market dynamics and reserve adequacy
Egyptian pound traded EGP 50.65-50.85 per dollar in January, narrowest range since March 2024 flotation. CBE intervened $1.2 billion supporting levels amid $450 million weekly inflows from export proceeds and remittances. Non-resident held T-bills reached $18 billion, 42% of total.
Net international reserves covered 8.6 months imports December 2025, exceeding IMF benchmark. Current account deficit narrowed to 1.8% GDP Q4 forecast from 2.9% prior quarter, driven by tourism recovery and Suez Canal partial operations resumption.
External sector performance bolstering inflation outlook
Suez Canal revenues recovered to $7.2 billion annualised rate post-November 2025 Houthi truce implementation. Tourism arrivals hit record 16.1 million exceeding pre-pandemic peak, generating $14.5 billion forex. Remittances grew 11% to $25.3 billion supported by Gulf construction boom.
Export competitiveness improved post-devaluation with non-oil exports up 17% including fertilisers, textiles and pharmaceuticals. Manufacturing PMI expanded 52.8 points January, strongest since programme inception indicating capacity utilisation above 75%.
Monetary transmission mechanism effectiveness
Aggregate credit growth slowed to 18.2% year-on-year December from 24.7% peak, aligning with CBE macroprudential tightening. Consumer lending contracted 3% reflecting elevated borrowing costs. Corporate sector external commercial paper issuance reached $4.2 billion supporting eurobond maturities.
Banking sector liquidity ratios strengthened to 135% statutory minimum with CASA deposits comprising 52% funding base. Non-performing loans stabilised at 4.1% supported by EGP 120 billion restructuring programme for 450,000 SMEs.
Comparative MENA inflation trajectories
Egypt's projected trajectory outperforms Jordan (3.2%), Lebanon (112%) but trails Morocco (2.8%) and Tunisia (7.1%). GCC basket eased to 1.8% reflecting hydrocarbon windfall revenues. Regional median projects 4.2% 2026 average versus Egypt's 9.8% forecast.
Central bank convergence towards inflation targeting frameworks accelerated post-IMF programmes. Comparative real policy rates: Egypt 12%, Jordan 4.1%, Morocco 1.8%, Tunisia 2.3%. Regional reserve adequacy averages 7.1 months imports.
Labour market indicators and wage pressures
Unemployment rate declined to 6.2% Q4 2025 Urban Youth LFS survey, lowest since 2008 global crisis. Real wage growth private sector 4.1% nominal minus 13.9% inflation. Public sector adjustment capped at 10% ahead of June elections.
Informal sector employment 55% workforce faces greater price sensitivity. Rural-urban wage differential narrowed to 28% from 35% pre-devaluation through agricultural support prices.
Household consumption patterns and CPI basket evolution
CAPMAS basket weights revised January 2026 incorporating 2023 Household Expenditure Survey. Food weight declined to 32.1% from 35.4% reflecting dietary diversification. Transport 14.3%, housing 12.8%, recreation 7.2% increased reflecting urbanisation.
Lower-income deciles expenditure 48% food versus 22% highest decile. Substitution effects favour domestic staples over imported luxury goods post-devaluation.
Trade balance composition and terms of trade
Merchandise trade deficit narrowed to $32.4 billion 2025 forecast from $41.2 billion 2024. Non-oil exports grew 19% led by chemicals 28%, agriculture 15%. Gold exports commenced Q4 2025 generating $2.1 billion.
Terms of trade improved 4.2% reflecting manufactured goods share rising to 68% exports. Import compression focused luxury consumer goods down 32% while capital goods increased 12% infrastructure focus.
Investment climate indicators and FDI recovery
FDI inflows reached $9.8 billion 2025, 22% above target led by chemicals, real estate, renewable energy. Suez Canal Economic Zone leased 1,200 hectares generating $450 million annual rents. Green hydrogen projects secured $15 billion commitments.
Ease of Doing Business ranking improved to 92nd globally from 114th 2023. One-stop-shop investment licensing reduced approval time to 14 days average.
Debt sustainability metrics and external financing
External debt service 2026 forecast $28.4 billion against $41.2 billion reserves, 69% coverage. Eurobond issuance $4.5 billion 7-year 8.15% coupon achieved lowest spread since 2019. Multilateral financing $12 billion committed 2026-2028.
Domestic debt restructuring extended maturities 24 months reducing rollover risk. Treasury bill yields declined 420bps to 23.1% reflecting improved fiscal credibility.
Regional geopolitical stability supporting outlook
Israel-Gaza ceasefire implementation January 2026 stabilised regional risk premium. Sinai security corridor operations reduced cross-border threats 87%. Red Sea shipping resumed 92% capacity post-Houthi de-escalation.
Egypt-EU Association Agreement review scheduled Q2 2026 targets tariff elimination on 95% industrial goods. BRICS membership applications progressed for expanded trade financing.