Egypt inflation remains unchanged

Egypt’s urban inflation rate was unexpectedly steady in July after declining for the previous seven months, easing pressure on the central bank to keep cutting interest rates.

Urban inflation, the benchmark rate that the central bank monitors, stayed at a 19-month low of 9.9 percent, the Cairo- based Central Agency for Public Mobilization and Statistics said today on its Web site. The nationwide inflation rate fell to 9.7 percent from 9.8 percent in June.

Egypt’s central bank has cut interest rates five times this year to prop up an economy whose growth has nearly halved due to the global financial crisis. The bank, which said its last cut in July was prompted by lower inflation excluding food prices, is due to make its next rates decision on Sept. 17.

“The Central Bank of Egypt could be inclined to keep interest rates unchanged at its next meeting,” especially if next month’s inflation figures show a rise in non-food prices, Reham El-Desoki, senior analyst at investment bank Beltone Financial in Cairo, said in an e-mail today.

Four out of five economists surveyed by Bloomberg News had expected inflation to slow to between 7.9 percent and 9 percent, while one predicted the rate would rise.

Prices rose 2.2 percent in July, led by a 4.2 percent jump in food and drinks, which make up almost half of the consumer price index, the statistics agency said. Hotel and restaurant prices also rose 3.5 percent, while the costs of tobacco, clothing, housing, health care, communications and education were all unchanged in the month.

More Rate Cuts?

The fact that non-food prices were stable in July means another rate cut is still likely next month, said Caroline Grady, an economist at Deutsche Bank AG in London.

“I don’t think it will be enough to stop more rate cuts,” she said.

Last month’s cut took the central bank’s benchmark rate to 8.5 percent, the lowest level since November 2006. The bank cited a drop in the inflation rate excluding food prices to 3.1 percent in the first half of the fiscal year, from 11.5 percent a year earlier.

Inflation had slowed every month this year before July, while the economy’s growth rate fell to 4.3 percent in the first quarter, about half the average of the previous three years.

Source: Bloomberg