Inflation relief for Egyptian economy

Egyptian inflation in the year to June eased slightly because of lower food prices compared to a year earlier, supporting a hold in interest rates this month to support an economy reeling from the ousting of President Hosni Mubarak.

Urban consumer inflation was 11.80% in the 12 months to June from 11.87% in May, Egypt's state statistics agency reported yesterday. But, on a monthly basis, prices rose 0.4% last month as prices of food and tobacco topped May's.

Analysts expect the central bank to keep interest rates steady in July to stimulate growth, saying the government was more concerned about ending the recession than fighting inflation.

Raising interest 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 Egyptian inflation to ease this month and predicted that the central bank would leave its benchmark overnight deposit and lending rates unchanged on July 21.

"The flat headline number masks a 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% of the weighting of the basket Egypt uses to measure inflation, decelerated 18.98% in the year to June from 19.8% in May.

Core annual inflation, which strips out subsidised goods and volatile items, rose to 8.94% in the year to June from May's 8.81%.