Egypt inflation lowest in 10 months on food prices

Inflation in Egypt fell to its lowest level in 10 months in January as food prices continued to ease, government data showed yesterday, adding to expectations the central bank will cut interest rates later this week.

Urban inflation in the year to January fell to 14.3 per cent, the government statistics agency Capmas said on its website, on the back of a 0.5 per cent drop in food prices in one month. In the year to December prices rose 18.3 per cent.

Food accounts for more than 40 per cent of the weighting of the basket used to measure inflation.

Almost all other components of the basket rose, with healthcare costs jumping 4.5 per cent and miscellaneous services rising 4.8 per cent.

Urban figures are the most closely watched indicator of price growth. Countrywide inflation was 14 per cent, down from 18.7 in the year to December.

Inflation grew slightly on a month-on-month basis, but the year-on-year figure declined sharply because it no longer includes the four per cent price rise of January 2008.

Inflation spiked in early 2008 as global commodity prices went up, pushing the central bank to raise interest rates six times in the year.

The bank has since held rates steady at two straight meetings, with the overnight lending rate at 13.5 per cent and the overnight deposit rate at 11.5 per cent. Its next meeting is tomorrow, and its decision will be announced on Friday.

In December, Central Bank Governor Farouk Al Okdah said monetary policy could be eased once inflation was under control, and analysts said the new figures could encourage easing.

"We believe the CBE should be proactive at this point and start cutting interest rates, as inflationary pressures are decelerating, especially as economic growth declines," investment bank Beltone Financial said in a note to clients.

Caroline Grady, an economist at Deutsche Bank based in London, expects a 50 basis point cut this week.

"There are very helpful base effects all the way through the first half of the year. By June, it is going to be around nine per cent or so," she said. "If you look at the month-on-month increases in the first half of 2008, you had 4 per cent this time last year and through the next four months you are averaging a month-on-month rate of 2.3 per cent."

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