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Egypt consumer inflation at 11-month high

By Agencies

Egypt's urban consumer inflation jumped to an 11-month high in February as prices for food and beverages surged, raising pressure on the country's central bank to hike interest rates for a second time this year.


The urban consumer price index rose 12.1 per cent year-on-year in February, from 10.5 per cent in the year to January, the government statistics agency CAPMAS said on Monday.


In its breakdown by sector, CAPMAS said prices of food and beverages rose 16.8 per cent year-on-year. It said this was due to a 26.5 per cent rise in the prices of bread and grain, and a 20.1 per cent increase in the prices of dairy products.


"The rise in international prices of imported products is a major contributing factor, as is the shortage in supply of some home-grown products and the rise in prices of inputs such as fertilisers and some energy products," said Reham El Desoki, senior economist at Cairo-based investment bank Beltone Financial.


"This is serious because if it affects spending by higher-income people it will weigh on economic growth," Desoki added.


Egypt's economy has benefited from an influx of petrodollar investment from the Arab Gulf and from reforms such as tax cuts and privatisation, but the government has been unable to hold down prices as the economy grows at its fastest pace in decades.


The price of fruit rose 14.4 per cent in the year to February, vegetables rose 14.6 per cent, and edible oils 39.8 per cent, according to CAPMAS.


Urban consumer prices rose 1.8 per cent on the month, compared with 4.0 per cent in the previous month, CAPMAS said.


Egypt's central bank raised its key overnight interest rates in February, the first rate change in over a year, due to higher food prices and inflationary pressure from surging economic growth.


Rising international food prices had driven up local costs, which in turn has spilled over into non-food inflation, the bank said at the time.


"The recent interest rate rise by the central bank needs time to have an effect especially since banks didn't follow it," Desoki said. "Unless banks raise interest rates the central bank will have to push them up again in its coming meeting later this month."


After Egypt raised fuel prices by 30 per cent for standard petrol in July 2006, inflation rose steadily to 12.8 per cent by March 2007. An outbreak of bird flu also helped push up prices.


Annual inflation was 9.3 per cent in September, when the statistics agency introduced a new consumer price index, but had dropped each month before January. (Reuters)