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Egypt Aug core inflation unexpectedly rises

Central bank expected to hike rates before end of 2010.

September 14, 2010 8:42 by

Egypt’s core inflation rate unexpectedly surged in August, hitting 8.2 percent, data showed on Monday, but analysts attributed the rise to a spike in food prices during Ramadan and said it was unlikely to prompt a rate rise this week.

However, the data does raise likelihood that the central bank will start to raise interest rates before the end of the year.

The core inflation rate, which excludes regulated prices of goods such as petrol and volatile items including fruit and vegetables, rose from 7.08 percent in the year to July and contradicted forecasts it would fall to 7.05 percent in August.

The increase followed data last week showing 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.

Most analysts, however, 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 $280-$290 a tonne for wheat from France, Canada and the United States in August and September, whereas in June it paid around only $165 a tonne 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 percent and 40 percent.

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

Egypt’s economy grew by an annualised 5.9 percent in the quarter that ended in June. For the fiscal year that ended in June, the economy grew 5.3 percent, accelerating from 4.7 percent growth 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.

(Reporting by Sherine El Madany; Additional reporting by Patrick Werr; Editing by Susan Fenton)

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