Egypt July inflation steady, above forecasts

Urban consumer price inflation in Egypt was steady at around 10 percent in the year to July compared with June, based on figures from the state-run statistics agency, staying above the forecasts of analysts who had expected a dip.

Three economists had predicted inflation rates for the period ranging from 8 to 9 percent. They said steady inflation could cloud the outlook for more rate cuts by the central bank.

The central bank cut key overnight interest rates by 50 basis points at the end of July, to 8.5 percent for deposits and 10 percent for lending.

Economists said the bank had indicated more cuts could be in the pipeline by saying the outlook for growth was on the downside and inflationary pressures were subsiding.

"It is not all in one direction. You do have lower growth, lower underlying inflation, but you do have prices shocks that muddy the waters a little bit," said EFG-Hermes economist Simon Kitchen, referring to prices of particular food items.

The CAPMAS index for urban inflation, cited on the state-run agency's website, was 136.6 in July 2009 compared to 124.2 for July 2008, indicating an inflation rate during the period of 9.98 percent or 10.0 percent when rounded.

The index for urban inflation in the year to June had indicated a rise of 9.96 percent or 10.0 percent when rounded.

However, CAPMAS gave the inflation rates as 9.9 percent for both June and July, without explaining the rounding discrepancy.

"We expect the Central Bank of Egypt could be inclined to keep interest rates unchanged at its next meeting on Sept. 17, should inflation figures reflect strong non-food inflationary pressures," Beltone's Reham El Desoki wrote in a note.

Economists noted that price rises had been underpinned by spending during the summer vacation and in the run-up to the Muslim fasting month of Ramadan, which starts in August.