CAIRO: CAPMAS announced Thursday that urban inflation in Egypt rose to a new three-year high of 16.4 percent in the year to April, up from 14.4 percent in the year to March. Abu Bakr El-Guindi, head of the state statistics agency, told reporters in a news conference that inflation was driven mainly by higher food prices, which rose 22 percent in the year. He added that in the month to April, prices of food and beverages rose 1.6 percent despite a decline in key prices such as rice, which dipped 8.4 percent, and wheat flour, which fell 6.5 percent. Several public officials explained that prices of wheat flour on the domestic market have recently dwindled due to a drop in global wheat prices, which eased off to LE 2,500 per ton in April, compared to LE 3,000 per ton in March. The decline has positively affected foodstuffs such as wheat flour, pasta and bread. Rice prices have also dropped on the back of the government's recent decision to ban rice exports from April 1 to October because of high prices of other grains, especially wheat, which has pushed up domestic demand for rice. Inflationary pressure continued to escalate despite expectations that it would slow down in April. "We expect the year-on-year change in the CPI [Consumer Price Index, which measures inflation] to be relatively stable or slightly less than the rate for March, considering the absence of additional significant increases in prices of goods and services in the CPI basket in April, investment bank Beltone Financial said in a statement released before CAPMAS made its announcement. "We expect the CPI to spike starting May, however, when the direct and indirect impact of the government's measures starts affecting inflation, added the statement. President Hosni Mubarak - facing growing public unrest over price rises - offered last week public sector employees a 30 percent increase in basic salaries, provided necessary revenue could be found so that the increase did not add to the budget deficit. The decision prompted the government to introduce last Monday price hikes in several commodities including high-octane fuel, natural gas prices for energy-intensive industries, and cigarettes, as well as fees of vehicle licensing. The decision has boosted gasoline prices between 35-45 percent, which has raised inflationary pressure concerns. Guindi said the latest price rises would show in the inflation figure for May, which will come out in June. Simon Kitchen, senior economist at Egyptian investment bank EFG-Hermes, told Reuters on Thursday, Most of this [inflation] is being driven by food prices and in the next couple of months you will see the effect of the fuel price rises taking effect. We are expecting inflation of around 20 percent by the middle of the year. Inflation rates rebounded in the first three months of 2008, after decelerating in the second half of 2007 as the effects of previous supply shocks in 2006 (namely avian flu and gasoline hikes) passed through. CPI inflation surged 10.5 percent year-on-year in January and 12.1 percent in February, up from 6.9 percent in November and December. "While we had expected that inflation would rebound in 2008 due to high levels of growth and rising global commodity prices, we have been surprised by the rate of increase in the first two months of this year, said EFG-Hermes in its latest economic report on Egypt. The pickup in inflation has prompted the Central Bank of Egypt (CBE) to raise its policy rates twice this year, most recently by 50 bps on March 23. The bank's Monetary Policy Committee (MPC) brought the overnight deposit rate to 9.5 percent and the overnight lending rate to 11.5 percent. "Given our pessimistic view on inflation in 2008, we expect further increases in policy rates, bringing the overnight deposit rate above 10 percent and overnight lending rate above 12 percent by the end of 2008, EFG-Hermes noted. The MPC met Thursday evening to decide on interest rates amid expectations the bank will likely raise its key interest rates by up to 50 basis points this week in an attempt to curb inflation.
