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Egypt inflation rises in June, rates seen on hold

By on July 10, 2010

Egypt’s annual urban inflation rate edged up to 10.7 percent in June, a moderate rise that analysts do not expect will prompt the bank to raise interest rates this month.

Seven analysts cited forecasts for urban inflation — the most closely watched indicator of prices — that ranged from 10.1 to 11.5 percent. The average of the forecasts was 10.66 percent.

They mainly attributed the rise to an increase in prices of food and beverages, which account for more than 40 percent of the weighting of the basket Egypt uses to measure inflation.

Economists expect inflation to continue rising in July and August on the back of higher consumer spending during the summer holidays and ahead of the Muslim holy month of Ramadan.

“We generally expect annual headline inflation will remain in the 11 to 13 percent range until the end of 2010, averaging 12 to 13 percent in 2010,” said Beltone Economist Reham ElDesoki.

The urban consumer price index for June was 147.9 versus 133.6 a year ago, the state statistics agency said on Saturday.

Urban inflation posted its first rise since February. Inflation was 10.5 percent in May. It had been on a downtrend since peaking at 23.6 percent in August 2008 but has fluctuated.

Inflation had been falling this year since hitting 13.6 percent in January.

Hany Genena, senior economist at Pharos, also said he expected the phase of disinflation to end after the government raised the sales tax on steel, cement and cigarettes as well as energy prices for industries to help tackle its budget deficit.

Several economists polled by Reuters believed the central bank was unlikely to change interest rates in 2010.

“We do not expect a change in CBE (central bank) interest rates, provided gasoline and diesel prices do not change until the end of the year,” ElDesoki said.

The bank kept benchmark overnight interest rates on hold at its last meeting on June 17, the sixth pause since the bank began a series of rate cuts more than a year ago.

It said at the time that inflation remained within its comfort zone and interest rates were supportive of economic recovery.

The central bank kept key rates at a nine-month floor and suggested that uncertain developments in Europe could crimp foreign investment. The bank next meets on July 29.

A survey of 11 economists in June predicted GDP in the North African country would grow 5.2 percent in the fiscal year ending in June 2011, and nine economists forecast it would grow 5.3 percent the year after.


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