Egypt inflation jumps to a year high on food prices

Economists expect headline inflation to continue rising in May, pushed up by higher food and oil prices as well as a currency depreciation. But they see the central bank keeping rates steady on the back of a weak macroeconomic backdrop and stable non-food inflation.

Investment Bank CI Capital forecast headline inflation to rise to 12.3 percent in the year to May, while EFG-Hermes expected it would average 12 percent in 2011.

Core annual inflation, which strips out subsidised goods and volatile items including fruit and vegetables, rose to 8.76 percent in the year to April from 8.54 percent in March, above the central bank's assumed comfort zone of 6-8 percent.

ECONOMIC SLOWDOWN

Anti-government protests fuelled by soaring prices, unemployment and demands for democratic reforms brought much of Egypt's economy to a standstill for nearly three weeks until Mubarak resigned on Feb 11.

A collapse in tourism and foreign investment following the political turmoil has hit revenues hard and economists forecast the economy of the most populous Arab country contracted 7 percent in January-March from the previous quarter.

Egypt's central bank kept its key overnight interest rates steady on April 28 in a bid to foster economic growth without reigniting high inflation.

It said the political shakeup would continue to affect consumption and investment, "adversely weighing" on the economy, while global recovery was uncertain due to higher international oil prices amid political unrest in the region.

The International Monetary Fund projects Egypt's economic growth to plunge to 1.0 percent this year after a 5.1 percent expansion in 2010.

Egypt's finance minister has estimated that the political turmoil would reduce economic growth to 2.5-3 percent in the financial year to end-June from the government's previous forecast of 6 percent.