Egyptian inflation expected to fall for fifth month in July

CAIRO (Reuters) - Inflation is expected to have declined for a fifth month in July, despite higher higher food, tobacco and fuel prices, as IMF efforts to control monetary policy have started to take effect, a Reuters poll showed on Wednesday.

Egypt in March signed an $8 billion financial support package with the International Monetary Fund that is helping it to control inflationary monetary policy, but requires it to increase many domestic prices.

As a result, the government has raised the price of some subsidised products to battle a budget deficit that hit 505 billion Egyptian pounds ($10.27 billion) in a 3.016 trillion pound budget in the year that ended on June 30.

On June 1, the government raised the price of popular subsidised bread by 300% and on July 25 the price of fuel by up to 15%.

But analysts said the big factor for inflation was progress compared with a year ago.

"The main factor that will contribute to the inflation rate in July is the base-year effect, said Aya Zoheir of Zilla Holding financial consultancy, adding that in the same month last year inflation was 36.5%.

Annual urban consumer inflation is forecast to have slowed to a median of 26.6% in July from 27.5% in June, according to a forecast of 18 analysts.

"We forecast July CPI to slow, despite energy subsidy reform, which is set to drive monthly inflation momentum as Egypt increases fuel prices gradually, aiming to achieve cost recovery by end-2025," said Carla Slim of Standard Chartered.

"We are watching for upside risks to CPI due to second-round effects, if other goods and services are repriced higher due to higher commodity prices," she added.

The government on Aug. 1 raised the price of metro tickets and further price increases are expected in the coming months.

Inflation had been slowing from September's record high of 38.0%, but in February unexpectedly jumped again to 35.7%.

A median of five of the analysts predicted that core inflation, which strips out volatile items such as fuel and some types of food, would decline to 26.0% from 26.7% in June.

The state statistics agency CAPMAS is due to release June inflation data on Thursday.

($1 = 49.1600 Egyptian pounds)

(Polling by Anant Chandak and Devayani Sathyan; Writing by Patrick Werr; editing by Barbara Lewis)