Egypt July inflation steady, monthly rate highest since 2008

Urban consumer inflation in Egypt was steady at 10.7 percent in the 12 months to July, the state-run CAPMAS statistics agency said on Tuesday but prices jumped on a monthly basis.

The urban consumer price index — Egypt's most closely watched indicator of prices — was 151.2 versus 136.6 a year ago, the agency said on its website.

"The stability of the annual inflation rate in July was primarily due to base effects rather than stability in goods and services prices," said Pharos director of research Hany Genena.

Analysts pointed to inflation of 2.3 percent in July month-on-month, based on the June consumer price index of 147.1. That was the highest month-on-month rise since August 2008 and compares to a 0.7 percent rise for June.

"I do not see the reading as benign, particularly if continued food price inflation started to shape inflation expectations and spillover to other non-food items going forward," Genena said.

Analysts had expected a price surge in July with strong consumption in the summer and before Ramadan, the Muslim holy month when many Egyptians break their daily fast with big evening meals with family and friends.

The month-on-month inflation rate rose after a sales tax was imposed on tobacco. Tobacco prices jumped 29.2 percent in July compared to a year earlier, after 10 months of zero growth, investment bank Beltone Financial said in a note.

The annual inflation rate has broadly been on a downtrend since peaking at 23.6 percent in August 2008. So far this year, it has dipped since starting 2010 at 13.6 percent in January.

Some analysts have said a declining inflation rate indicates the central bank will keep interest rates steady in 2010.

"There is no need to raise interest rates until the end of the year," Alia Mamdouh, economist of CIBC said.

The central bank said last month it was keeping its key overnight interest rates on hold for a seventh successive time, a day after the government announced economic growth had accelerated to an annual 5.9 percent.

The next meeting of the central bank's monetary policy committee is September 16.

Economic Development Minister Osman Mohamed Osman forecast that growth would likely accelerate to 6.5 percent in 2010/11 as the economy rebounded from the global downturn.

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