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PRESSURE ‘TO EASE ON GULF AID’

Egypt consumer inflation surges to two-year high

Cairo, August 8, 2013

Egypt's urban consumer inflation quickened to its fastest in two years last month, the central bank said on Wednesday, driven by higher food prices and a sliding currency.

Urban consumer inflation rose to an annual 10.28 percent in July, up from 9.75 percent in June and its highest since July 2011.

Investment bank EFG Hermes said in a note it expected inflationary pressures to ease in the next five months as aid promised by Gulf Arab allies pours into Egypt following the army's overthrow of Islamist President Mohamed Mursi on July 3.

But it said year-on-year inflation figures would remain high, reflecting price rises in the first half of 2013.

Saudi Arabia, the United Arab Emirates and Kuwait pledged a total of $12 billion in economic aid within days of Mursi's removal after just a year in office.

The Egyptian pound, which fell by 13.6 percent against the dollar in the year to end-June, has been weakened by declines in tourism and foreign investment which have not recovered since the country's popular uprising in 2011.

Food prices have surged in recent months, with food costs jumping 1.7 percent in the last month alone, EFG Hermes said, partly due to increased purchases for Ramadan, which is expected to end on Wednesday evening.

"For the seventh month in a row, most food prices in the consumer basket registered price increases," its note said.

Egypt's annual core inflation, which strips out subsidised goods and volatile items including fruits and vegetables, rose to 9.06 percent in the year to July from 8.56 percent in the year to June, the central bank said. That was the highest since February 2011.

EFG Hermes forecast an average annual consumer inflation rate of 9.4 percent in the fiscal year to June 2014.

It said the Gulf aid would help keep inflation in check in coming months by allowing the state to support the pound, which should keep down the price of imported goods and allow it to continue supplying consumers with subsidised energy products.

Ministers appointed after Mursi's removal have outlined a stratgey of avoiding austerity measures, for which they say they lack a popular mandate, and instead pursuing an expansionist policy to get the economy running after 30 months of stagnation.

This should keep energy and imported goods prices relatively steady for the next six to eight months, EFG Hermes said.

Efforts to prop up the pound left Egypt with critically low reserves of foreign currency earlier this year, threatening the most populous Arab nation's ability to buy essential supplies of wheat and fuel. – Reuters




Tags: Egypt | Central Bank | inflation | Gulf aid |

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