Egypt inflation rises to 11.5% in March on food

April 11, 2011 - 0:0

CAIRO (Reuters) - Urban consumer inflation in Egypt accelerated in the year to March to an 11-month high, pushed up by soaring food prices that contributed to the mass protests that eventually toppled President Hosni Mubarak.

Urban consumer inflation in Egypt rose to 11.5 percent in the 12 months to March, its highest level since April 2010, up from 10.7 percent in February. On a monthly basis, it increased to 1.4 percent in March from 0.1 percent in February.
Several economists had expected an increase in the rate -- the most closely watched indicator of prices -- as a result of a weaker pound and imported inflation.
Analysts say they expect the central bank to keep rates steady this month to support an economy reeling from the impact of the popular revolt. Hiking rates to combat food-driven inflation would have limited or no effect on overall prices.
“The month-on-month number is high but this is to be expected given rising global commodity prices, ongoing supply shortages and a weaker currency,” said Liz Martins, economist at at HSBC Middle East.
“Going forward, these factors, alongside expansionary government spending and higher wages, will keep prices elevated.”
Inflation in urban food and beverage prices, which account for 44 percent of the weighting of the basket Egypt uses to measure inflation, soared to 20.5 percent in the year to March, up from 18.2 percent in February.
Egypt, which relies on imports for at least half of its domestic consumption, is likely to suffer further food price inflation after the U.N. Food and Agriculture Organization said global food prices could rebound as demand grows and supplies tighten.
Investment bank CI Capital said it forecast that urban inflation would average 12.8 percent in 2011.
------------Interest rates
Anti-government protests fuelled by soaring prices, unemployment and demands for democratic reforms brought much of Egypt’s economy to a standstill for nearly three weeks until Mubarak resigned on Feb. 11.
Egypt’s economy has been hurt by a collapse in tourism and foreign investment since protests erupted on Jan. 25.
The finance minister estimated on Monday that the political turmoil would reduce economic growth to 2.5-3 percent in the financial year to end-June from the government’s previous forecast of 6 percent.
The economy grew by 5.1 percent in the fiscal year that ended June 30, 2010. “With a much weaker growth environment, it will be harder for the central bank to raise rates to counter this pressure,” Martins said.
The central bank on March 10 left its benchmark overnight deposit rate at 8.25 percent and the overnight lending rate at 9.75 percent, its 12th pause since it stopped lowering rates in September 2009.
It launched weekly repurchase agreements in the money market to keep short-term interest rates under control after the political and economic turmoil of the past six weeks.
The next policy meeting of the central bank’s Monetary Policy Committee is scheduled for April 28.