[2007-09-13]  Egypt inflation at 8.5 pct, above expectations
Egypt's consumer price index rose 8.5 percent in the year to August, up from 8 percent in July, above central bank and market expectations.

Central Bank Governor Farouk el-Okdah said in July he expected inflation to drop to 7 percent in August and even lower by the end of the year after peaking at 12.8 percent in March because of a rise in fuel prices and an outbreak of bird flu.

"This is a surprise," Simon Kitchen, an economist at investment bank EFG-Hermes, said. "We were expecting inflation to continue dropping after the (price) shocks last year."

"But without knowing what the main drivers are it is difficult to say whether it is worrying or not. Maybe it is a seasonal effect before the month of Ramadan."

Prices of food and beverages, which account for nearly 40 percent of the consumer price index, usually rise ahead of the holy month, during which Muslims fast from dawn to sunset but hold banquets and parties at night where they consume large quantities of food.

"Of course it is annoying that inflation is continuing to rise but we have been lucky so far that it has not become systematic," said Angus Blair, head of research at Beltone Financial in Cairo.

"It has been focused basically on few areas like food. The government will be a bit concerned that it has not fallen a bit further but not overly concerned."

The figures appeared to have no impact on the Egyptian stock exchange, whose main two indexes were trading more than 1 percent up by 1100 GMT.

Blair said strong growth of the Egyptian economy over the past two years has unleashed a wave of demand from consumers that caught the private sector off guard, triggering inflationary pressures.

"We are bound to have some inflationary impact until you have a greater supply of goods and services by the private sector," he said.

The Egyptian economy grew at 7.1 percent in the fiscal year that ended in June, its fastest annual rate in five years.

But independent and opposition newspapers have criticised the government for what they described as a rapid increase in the prices of basic food and services, saying official inflation figures were not accurate.

Ahmed el-Naggar, a senior economist at the state-funded Al Ahram Centre for Political and Strategic Studies, agreed.

"The credibility of official inflation figures is doubted," he told Reuters. "Recently the prices of some food stuffs have risen between 25 to 50 percent."

Land prices have also soared in Egypt over the past year, driven by funds from Gulf Arab states and auctions selling state-owned land.



Source: © Reuters 2007.