Egypt Independent

Egypt’s inflation eases slightly in June on food prices



Egyptian inflation in the year to June eased slightly on the back of lower food prices from a year earlier, supporting a hold in central bank interest rates in July to support an economy reeling from the impact of the revolt that ousted Ppresident Hosni Mubarak.

Urban consumer inflation was 11.8 percent in the 12 months to June from 11.87 percent in May, Egypt's state statistics agency CAPMAS reported on its website on Sunday. But on a monthly basis, prices increased 0.4 percent in June, as prices of food and tobacco increased from May.

Analysts expect the central bank to keep interest rates steady in July to stimulate growth, saying the government is more concerned about ending a recession than fighting inflation. Raising rates to combat food-driven inflation would have a limited or no effect on overall prices.

Simon Williams, chief economist at HSBC Middle East, said he expected inflation to ease in July and predicted the central bank would leave its benchmark overnight deposit and lending rates unchanged in its meeting on July 21.

"The flat headline number masks weaker underlying inflationary trend. I expect to see price growth in single digits next month for the first time in two years."

Food and beverage prices, which account for 44 percent of the weighting of the basket Egypt uses to measure inflation, decelerated 18.98 percent in the year to June from 19.8 percent in May.

RECESSION

Egypt's economy fell into recession after the uprising that toppled Mubarak, as vital sources of foreign exchange including tourism and foreign investment collapsed.

Real gross domestic product contracted by 4.2 percent in the fiscal third quarter from January to March, its first year-on-year contraction since Egypt's first release of quarterly GDP data in 2001/02.

The central bank Monetary Policy Committee kept its key lending rate at 9.75 percent and the deposit rate at 8.25 percent on June 9, saying the magnitude of the decline in the economy was larger than expected at the outset of the revolt.

Economists say political uncertainty will continue to dampen investor appetite and tourism at least up until parliamentary and presidential elections due later this year.

A Reuters poll on June 21 forecast that Egypt's economy would see its slowest growth in many years over the next two years as the political upheaval continued to hit tourism, investment and private consumption.

The survey of 12 economists predicted gross domestic product (GDP) in the Arab world's most populous nation would grow 3.0 percent in the fiscal year ending June 2012, based on the median figure. That compares to a government estimate of no more than 3.0-3.5 percent.

The Reuters poll forecast inflation, one of the key triggers of the mass demonstrations that toppled Mubarak, would accelerate slightly to an average of 12 percent in the 2011/12 financial year, before falling to 10.1 percent the year after.