CAIRO - Egypt's core inflation rate unexpectedly surged in August, hitting 8.2 per cent, 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 per cent in the year to July and contradicted forecasts it would fall to 7.05 per cent in August. The increase followed data last week showing that urban inflation - the most closely watched indicator of prices - had accelerated to 10.9 per cent year-on-year in August, up from 10.7 per cent 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 Wc1 BL2c1 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 per cent by the end of June 2011 if wheat prices rose between 20 per cent and 40 per cent. "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 per cent in the quarter that ended in June. For the fiscal year that ended in June, the economy grew 5.3 per cent, accelerating from 4.7 per cent 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 per cent and the overnight borrowing rate at 8.25 per cent.
