Urban consumer inflation in Egypt fell to its lowest level in a year in March, but was still a touch above analysts' expectations because of rising food prices.

Egypt's state-run statistics agency Capmas said urban inflation, the most closely watched indicator of price growth in Egypt, fell to 12.1 percent year-on-year, down from 13.5 percent a month earlier, and a level last seen in February last year.

Nationwide inflation to March was 11.6 percent.

Figures showed food price rises accelerated in the month, climbing by 2.6 percent during March in urban areas, compared with a rise of only 2.3 percent during February.

"It's higher than we expected," said Simon Kitchen, senior economist at investment bank EFG-Hermes. "Food prices don't seem to be coming down; in fact they seem to be going up. There may be some seasonality there."    

Reham El Desoki from Beltone Financial said food inflation has declined both on an annual and monthly basis since August 2008, but a faster rise in prices for dairy products in February had pushed overall food costs higher.

"Dairy producers have been negotiating with the government to receive a subsidy to reduce their prices, given their higher cost of production compared to imported products," she said.

"It appears that this issue has not been resolved yet, leading to higher dairy products prices."     

Inflation spiked in Egypt in early 2008 as global commodity prices climbed, pushing the central bank to raise interest rates six times in the year before it cut them back in February and again in March, citing slowing inflation and reduced growth in the manufacturing sector and in Suez Canal receipts. - Reuters