CAIRO: Urban consumer inflation in Egypt rose to 13.3 percent in the year to October compared to 10.8 percent in September, the state statistics agency reported on Tuesday, a bigger jump than analysts had forecast. Three analysts forecast urban inflation - the most closely watched indicator - would rise to 11-11.5 percent in October. The consumer price index for urban areas was 144.4 in October 2009 compared to 127.5 in October 2008, a rise of 13.3 percent, the statistics agency CAPMAS reported on its website. This was an unpleasant surprise, said Sally Mikhail, a senior analyst at Naeem Holding. She had been expecting the central bank to keep rates on hold at least to the end of 2009. The 13 percent may require an increase sooner than that. Unfortunately this goes against the requirement for growth, she said. But she said much would depend on what happened to core inflation, which strips out more volatile items like food. The central bank started publishing its core inflation figure last month, saying it was 6.3 percent in September. On an annual basis, food prices rose by 22.2 percent in October, up from 17.4 percent in September, and were also up 2.6 percent from last month. "It appears that the prices of grains, meat, fish, fruits and vegetables and sugar rose at a faster pace in October than in September 2009, reflecting the change in international commodity prices, said Beltone in a statement. Other analysts said they would be watching for the core inflation figure and said the central bank could start a new cycle for tightening interest rates sometime in 2010. The government said last month its target for core inflation was 6-8 percent and said it did not want to take any policy action that would curb growth which the government said was expected to be around 5 percent in the financial year 2009/10. The central bank has not announced its comfort zone for inflation. The central bank kept key overnight interest rates steady on Thursday, saying the current level would support growth and control inflation in the medium term. The overnight lending rate is 9.75 percent and the deposit rate is 8.25 percent. Thursday s decision to hold rates was the first pause since the bank began cutting in February. Since then it cut rate six times after inflation fell from a mid-2008 high of 23.6 percent. Beltone analyst Reham ElDesoki had forecast 11.5 percent for October urban inflation and had seen inflation reaching 15 percent by the end of 2009. She said the unexpected October rise meant inflation could now hit 17 percent by the end of the year. Depending on how core inflation data is impacted, we expect the Central Bank of Egypt could commence a monetary tightening cycle sometime in 2010, depending on the strength of non-food inflation and whether the government raises energy prices or not, she wrote in a research note. -Additional reporting by Mohamed Samir.
