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Mon 11 Feb 2008 10:19 AM

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High food prices push up Egypt cost of living

Consumer price index up 11.5% in January on higher food prices, statistics agency says.

Higher food prices pushed Egypt's consumer price index (CPI) for urban areas up 10.5% in the year to January 2008, from 6.9% in the year to December 2007, the government statistics agency Capmas said on Sunday.

A Capmas statement said consumer prices throughout the country rose 11.5% in the year to January, compared with 7% to November. That index comes out every two months.

The urban CPI rose 4% in the month, compared with 0.4% in the month to December. All-Egypt prices rose 4.7% in the month to January.

In its breakdown by sector, Capmas said the CPI for food and beverages throughout Egypt rose 16.2% in the year to January due to an increase of 34.9% in the price of bread and 26.4% in the price of food oils.

"It is a reflection of the fact that the consumer price index is now very sensitive to any change in food and beverages prices and factors affecting them," said Reham ElDesoki, senior economist at regional investment bank Beltone Financial.

"These include rises in world prices, of products Egypt imports, and any local cost-push factors, especially energy prices," she added.

Egypt's economy grew 7.1% in the last fiscal year, its fastest rate in at least two decades, but inflation remains a concern in light of expected cuts in fuel subsidies during 2008.

"With any increases in diesel prices, we would see the CPI above 12%," ElDesoki said.

The Central Bank of Egypt (CBE) said on Friday it had raised its key overnight interest rates by 25 basis points, the first change in over a year, due to higher food prices and inflationary pressure from surging economic growth.

The central bank now pays 9% on overnight deposits and lends overnight at 11%.

"But with this inflation rise, real average deposit interest rates have dropped back to negative territory after climbing to just over zero in recent months," ElDesoki said.

"The real average deposit interest rate, based on CBE data, could be between negative 3% to 4%," she added. (Reuters)

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