January 10, 2019 / 8:03 AM / 5 months ago

UPDATE 2-Egypt's urban inflation drops to 12.0 pct as food prices fall

(Adds core inflation)

CAIRO, Jan 10 (Reuters) - Egypt’s annual urban consumer price inflation fell sharply in December as monthly food prices dropped, sparking speculation over whether the central bank might start cutting interest rates this year.

Inflation fell to 12.0 percent from 15.7 pct in November, statistics agency CAPMAS said on Thursday.

An increase in fuel, electricity and transportation had filtered down to food prices and sent the rate up to a high of 17.7 percent in October.

Egypt has implemented tough austerity measures to help meet the terms of a $12 billion IMF loan programme it signed in late 2016. The programme calls for tax increases and deep cuts to energy subsidies.

Hany Farahat, senior economist at Egyptian investment bank CI Capital, said December’s headline number “bodes well with our view that the central bank could shift to monetary easing in 2019, particularly in the first half of the year.”

Two other analysts said it was too early to tell if the fall would trigger a policy shift from Egypt’s central bank.

The bank, which targets inflation of 13 percent plus or minus 3 percentage points, last moved rates in March, slashing the overnight deposit and lending rates by 100 basis points each to 16.75 percent and 17.75 percent respectively.

It said after its December meeting that policy rates were in line with “achieving targeted disinflation.”

Other analysts’ reaction to the inflation data was mixed.

“What we’re seeing now is a return to normal conditions,” Allen Sandeep, head of research at Naeem Brokerage in Cairo, adding however that the 6.7 percent month-on-month drop in the price of food and beverages was a lot.

Alia Mamdouh, director of macro and strategy at Beltone Financial, meanwhile called the headline figure “extremely surprising.”

Annual core inflation, which strips out volatile items like food, increased to 8.3 percent in December from 7.94 percent in November, CAPMAS said. (Reporting by Nadine Awadalla; Editing by Sunil Nair and John Stonestreet)

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