CAIRO: Annual urban inflation in Egypt eased to 10.4 percent in July, its lowest in seven months, on the back of a slowdown in food prices which contributed to the mass protests that toppled President Hosni Mubarak earlier this year. Urban consumer price inflation, the most closely watched indicator of prices, reached its lowest level since December 2010 and was down from 11.8 percent in June. But on a monthly basis, urban inflation stood at 1.2 percent, up from 0.4 percent in June. "The month-on-month reading is actually quite high given a slowing growth environment, although there may be a pre-Ramadan effect in play here," said Liz Martins, economist at HSBC Middle East, adding that slow growth rates made interest rates hikes unlikely. The Muslim holy month of Ramadan, which began on Aug. 1, triggers higher consumer spending as families gather for banquets to break their daily fast. Food and beverage prices, which account for 44 percent of the weighting of the basket Egypt uses to measure inflation, decelerated 16.7 percent in the year to July, down from 19 percent in June. Analysts say they expect the central bank to keep interest rates steady in August to support an economy reeling from the impact of the popular revolt and the collapse of some of the country's main sources of foreign exchange, including tourism and foreign investment. "The decline in the annual inflation rate appears to be attributable to a high baseline effect ... The main (inflation) driver at the time (last year) had been sharp increases in the price of food against the background of rising global food prices," said Giyas Gokkent, chief economist at the National Bank of Abu Dhabi. Uncertainty "The same level of price pressure does not seem to exist right now, so annual inflation may well fall again in August," Gokkent added, forecasting the central bank would leave interest rates unchanged "given continuing uncertainty". Egypt's economy fell into recession after the uprising that toppled Mubarak, and banks have been hit further by a weak financial market and an exodus of foreign investors. Gross domestic product (GDP) tumbled in the first quarter and growth is expected to remain weak during the second half of 2011. Real GDP 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 voted on July 21 to keep its key lending rate at 9.75 percent and the deposit rate at 8.25 percent, which it has not altered since September 2009. Economists say political uncertainty will continue to dampen investor appetite and tourism at least until a parliamentary vote expected in November and subsequent presidential elections.
