Egypt November Inflation Accelerates as Food Prices Increase

December 11, 2011, 7:35 AM EST

By Mariam Fam

(Updates with economist comment in third paragraph.)

Dec. 10 (Bloomberg) -- Egypt’s inflation accelerated on rising food prices in November, the month that saw the central bank’s first interest rate increase in three years.

The annual inflation rate in urban parts of Egypt, the gauge that the central bank monitors, rose to 9.1 percent from 7.1 percent in October, according to data posted on the website of the official statistics agency today. Food and beverage costs, the biggest component in the consumer price index, increased an annual 11.6 percent in November, compared with 8.7 percent a month earlier, the data showed.

“The favorable base effects that were at play in the last few months are starting to fade away,” Mohamed Abu Basha, a Cairo-based economist at EFG-Hermes Holding SAE, Egypt’s biggest publicly traded investment bank, said in a telephone interview.

The central bank cited inflationary pressures when it raised its benchmark deposit rate by a percentage point to 9.25 percent on Nov. 24. Most economists said its real purpose was to stem flight from the Egyptian pound as violence flared between security forces and protesters calling on the generals who took over from Hosni Mubarak to step down.

Since the bank’s move, Egypt has concluded a largely peaceful first round of parliamentary elections, with Islamist groups led by the Muslim Brotherhood winning the most votes, and Prime Minister Kamal el-Ganzouri took office with enhanced powers granted by the army council, which says it won’t transfer authority to elected politicians until a presidential vote is held next year.

Dwindling Reserves

The economy is still struggling to recover from the unrest before and after the fall of Mubarak in February, which has deterred tourists and foreign investors. Gross domestic product grew 1.8 percent in the fiscal year that ended June 30, its weakest performance in at least 10 years.

The central bank has spent about 40 percent of its foreign currency reserves this year. The pound has dropped 3.6 percent this year.

More interest rate increases are likely in 2012, as “the eyes of the central bank now are more on the currency rather than inflation when it comes to policy rates,” said Abu Basha.

--With assistance from Mahmoud Kassem in Cairo. Editors: Ben Holland, Louis Meixler.

To contact the reporters on this story: Mariam Fam in Cairo at mfam1@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net