August core annual inflation up, rates seen steady

Egypt's central bank said on Monday that core annual inflation rose to 8.2 percent in the year to August, but analysts said the higher-than-expected rise was unlikely to prompt an interest rate hike on September 16.

The annualized core rate, which cuts out regulated goods such as petrol and volatile items including fruit and vegetables, was 7.08 percent in the year to July.

On Wednesday, the state statistics agency said that urban inflation — the most closely watched indicator of prices — had accelerated to 10.9 percent year-on-year in August, up from 10.7 percent in July.

"It is still unlikely that there will be a rate rise at this week's meeting," said Simon Williams, chief economist at HSBC Middle East.

Economists said food price increases during the Muslim fasting month of Ramadan, when families gather for banquets to break their daily fast, helped fuel inflation in August.

Four analysts polled by Reuters gave an average forecast for core annual inflation of 7.05 percent in the year to August. The forecasts ranged from 6.6 percent to 7.4 percent.

Most analysts expect the central bank to raise its benchmark interest rates before the end of the year.

"Growth is building momentum, and inflation is rising. We're clearly getting closer to the first rate hike," Williams said.

Barclays Capital said on Monday higher wheat prices had begun to put pressure on prices in Egypt, the world's biggest wheat importer.

Soaring global wheat prices have been largely linked to drought and fires in Russia, which had been the world's No. 3 wheat exporter before it imposed an export ban this summer.

Egypt has paid about US$280-US$290 a ton for wheat from France, Canada and the United States in August and September, while in June it paid around US$165 a ton for some Russian wheat.

Barclays forecast inflation would be between 10.6-11.8 percent by the end of June 2011 if wheat prices rose between 20-40 percent.

"We now believe that further downside to inflation is limited as the outlook becomes clouded by a number of uncertainties," it said.

Egypt's gross domestic product rose by an annualized 5.9 percent in the quarter that ended in June. For the fiscal year that ended in June, the economy grew 5.3 percent compared with 4.7 percent the previous year.

The central bank has not changed its key interest rates since September 2009, leaving the overnight lending rate at 9.75 percent and the overnight borrowing rate at 8.25 percent.

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