Rising food prices drove Egypt's urban inflation to 22 per cent in the
year to last month, the highest since January 1992, and analysts expect
prices to remain high until the end of the year
Urban inflation stood at 20.2pc in the year to June, the state-run statistics agency Capmas said yesterday.
Monthly inflation rose 2.2pc, compared to 0.6pc in June.
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The Egyptian central bank raised its key overnight interest rates for the fifth time this year on Thursday by 50 basis points to tame inflation, bringing the rates to 11pc for deposit and 13pc for lending.
"Recent policy rate increases have had only limited effectiveness due to the abundant liquidity in the banking system and low loan-to-deposit ratios," investment bank EFG-Hermes said.
It said the central bank was likely to allow the Egyptian pound to appreciate against the US dollar "as a more effective means of addressing inflation."
The pound has gained more than 7pc against the US dollar since the start of last year. With the economy growing at its fastest pace in decades, rising inflation has emerged as a tough challenge for the government in a country that has a low per capita income and high poverty rate relative to other Middle East nations.
Soaring food prices triggered violent protests in some areas in the country this year. This prompted the government to raise public sector salaries by 30pc and then nudge up fuel prices to finance the wage increase.
Price rises in urban food and beverages, which slowed down in the month to June at a rate of 0.8pc, accelerated again last month to a rate of 3.1pc.
A senior economist at Beltone Financial Reham El Desoki reported that only a significant long-term decline in the prices of global commodities would help stabilize prices in Egypt.
She added that "this is due to vendors maintaining their prices at current levels to try to maximize their profits, especially with a market-based pricing system that does not impose price caps on products and services' prices,"
Egypt has responded to public anger over inflation by making more cheap food available on a ration card system. Food inflation has hit the poor especially hard because many of them spend more than half their income on food.
Prices for transport in urban areas, which stabilized in June, rose 1.7pc in the month to last month, while urban telecommunication inflation stood at 5.3pc.
Prices in the country as a whole, an indicator released every two months, rose 23.1pc in the year to last month, from 21.1pc in the year to May. In the countryside, inflation rose to 24.3pc in the year to last month, from 22.9pc two months earlier.
"We expect inflation to be around 18-19pc by the end of the year, in the absence of additional supply shocks or a spiraling of international commodities prices," El Desoki said.
According to Reuters poll this month, high inflation is likely to take a toll on real growth in the current 2008-09 fiscal year, with economists predicting gross domestic product growth to slow to between 4.8pc and 6.8pc, below the government's target of more than 7pc.
EGYPT NEWS
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