VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #1481 1970539
ZNR UUUUU ZZH
R 150539Z JUL 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 9831
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0421

UNCLAS CAIRO 001481 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA AND 
USAID FOR ANE/MEA MCCLOUD AND RILEY 
USTR FOR FRANCESKI 
TREASURY FOR MATHIASON AND DENNIS 
COMMERCE FOR 4520/ITA/ANESA/OBERG 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN EINV EG
SUBJECT:  INFLATION RISES IN JUNE, BUT NOT AS FAST AS IN PREVIOUS 
MONTHS 
 
Sensitive but Unclassified.  Not for Internet distribution. 
 
¶1.  (U) Inflation reached 20.2% year-on-year (YoY) in June, up from 
19.7% YoY in May, according to Egypt's Central Agency for Public 
Mobilization and Statistics (CAPMAS).  Food prices increased 27.2% 
YoY, up slightly from 27% YoY in May.  Speaking just before release 
of the inflation figures, Minister of Economic Development Othman 
told the press that the price of some items - fruits, meat, tomatoes 
and chicken - actually decreased in June.  Focusing on the positive, 
Othman noted that month-on-month (MoM) food and beverage prices rose 
only 0.8% in June, down from 3.6% MoM in May.  Overall MoM inflation 
was only 0.6% in June, compared to an average MoM increase of 5.5% 
in the first five months of 2008.  For FY2007-08 (which ended 30 
June), inflation averaged 11.7% YoY, up from 11% YoY in FY2006-07, 
according to Othman. 
 
¶2.  (U) Anticipating continued inflationary pressure, the Central 
Bank (CBE) raised interest rates by 50 basis points in late June, to 
10.5% (deposit) and 12.5% (lending).  A statement by CBE's Monetary 
Policy Committee indicated that as food prices continue to rise, the 
spillover to non-food prices remains strong, as does the pass 
through effect from adjustments to the fuel subsidy in early May. 
While several banks, notably National Bank of Egypt, raised deposit 
rates accordingly, the CBE interest rate hike is likely to have 
little impact overall, due to the continued high liquidity in the 
banking system.  Most analysts assert that appreciation of the 
Egyptian pound against the U.S. dollar would slow inflation more 
effectively than interest rate hikes. 
 
¶3.  (SBU) Comment:  While the relatively low increase in inflation 
in June is a positive development, inflation is likely to remain 
high in the medium term.  Ramadan begins in September this year, and 
food prices have historically risen during the fasting month.  This 
year, as last, Ramadan also coincides with the beginning of the 
academic year, when families spend more than normal on school 
supplies.  Media reports about bread lines have decreased 
significantly, as the GOE's separation of bread production from 
distribution appears to have reduced the black market for subsidized 
wheat.  In late June, the GOE announced plans to form a committee to 
develop the bread subsidy system, including public bakeries and 
distribution points, signaling that the government doesn't plan to 
alter the food subsidy system in the near future. 
SCOBEY