Egypt's inflation rises again, and is expected to keep going up

CAIRO (Reuters) - Egypt’s core inflation rose in June and is expected to rise even more after the government’s recent decision to increase fuel and electricity prices.

Import-dependent Egypt has been hit by soaring inflation since it floated its currency in November, allowing the pound to roughly halve in value. The float marked the opening of a three-year, $12 billion International Monetary Fund reform program that includes tax increases and subsidy cuts.

Core inflation, which strips out volatile items like food, increased to 31.95 percent year on year in June from 30.57 percent in May, the central bank said on Monday.

Annual urban consumer price inflation rose slightly in June to 29.8 percent from 29.7 percent in May, the official statistics agency, CAPMAS, said on Monday.

Last week, the government increased electricity prices by up to 42 percent this fiscal year for households. A week earlier, it raised fuel prices by up to 50 percent to help meet the terms of its IMF loan agreement [nL8N1JQ1G5].

Rising prices present a challenge for President Abdel Fattah al-Sisi and his government, which have pledged to push ahead with sensitive austerity measures like fuel and electricity price increases.

Although the monthly inflation rate in Egyptian cities eased to 0.8 percent in June from 1.7 percent in May, government officials and analysts expect the higher fuel prices to add 3 to 4.5 percentage points to year-on-year inflation in the coming months [nL8N1JU2LP].

“Based on our rough calculation, headline inflation should rise above 35 percent starting July/August. However, some of this could get offset ... if the Egyptian pound strengthens,” said Allen Sandeep, head of research at Naeem Brokerage in Cairo.

“Invariably, most goods and services are impacted by energy costs ... be it in the form of energy input, transportation, feed stock ...,” Sandeep added.

Egypt’s central bank, faced with accelerating inflation, raised its key interest rates by 200 basis points for the second policy meeting in a row on Thursday, surprising economists who had forecast no change.[nL8N1JX5WF}

The bank raised interest rates by three percentage points after the currency flotation. The IMF has said lowering inflation is crucial to keeping the reform program on track and that raising interest rates could be an appropriate tool for doing so.

The central bank has said it aims to cut inflation to 13 percent by the end of next year.

The IMF is expected to disburse a second loan installment of $1.25 billion this month.

Reporting by Amina Ismail, addtional reporting by Eric Knecht; writing by Amina Ismail; Editing by Larry King