By Patrick Werr and Sherine El Madany
CAIRO, Oct 25 (Reuters) - Egypt's central bank began publishing a core inflation index on Sunday, a move seen as increasing transparency about monetary policy in a country where price rises peaked at more than 20 percent in 2008.
The bank has, since 2006, used but not published the index, which strips out subsidised goods and volatile items such as food and energy.
Economists have said food price rises have been propping up urban inflation, the most widely watched inflation indicator in Egypt. Energy and some food items are subsidised in Egypt.
'You can analyse the core inflation and from there analyse future inflation,' Deputy Governor Hisham Ramez told a news conference in Cairo to announce the core inflation figure.
Rania al-Mashat, head of monetary policy division at the central bank, said launching the index did not mean the bank would ignore growth as it sought to control price rises.
'Targeting price stability does not mean that we will overlook growth,' she said. 'We are seeking economic growth as well as lowering inflation rates to the bank's comfort zone.'
The bank does not reveal its 'comfort zone.' The economy grew more than 7 percent before the economic downturn, but has since slowed. However, the government still expects growth of more than 5 percent in 2009/10.
'We want to make sure that people understand what inflation is, so that inflation expectations are managed properly,' Mashat said, adding that the index was one step toward implementing an inflation targeting policy.
Commenting on the announcement, Beltone economist Reham ElDesoki said: 'The core inflation index should provide better visibility regarding interest rate decisions by the (central bank) and their underlying rationale.'
INTEREST RATES
ElDesoki said she expected the central bank to keep interest rates on hold, after a series of cuts, 'despite the anticipated changes in headline inflation.' She said the headline inflation figure could hit 15 percent by the end of 2009 or early 2010.
The rising cost of food and drink pushed Egypt's annual urban inflation to 10.8 percent in September, according to the official statistics agency, the first rise in 10 months.
'The main contributor to the month-on-month increase in the headline inflation was prices of fresh vegetables,' the central bank said in a statement, adding that core inflation was 6.3 percent in September compared with 5.8 percent in August.
Core inflation was 23 percent in August 2008, it said. Urban inflation figure peaked at 23.6 percent in August 2008.
Economists said a rise in inflation in September this year was likely to bring an end to the central bank's cycle of loosening interest rates.
Food items like fruit and vegetables with volatile prices dependent on weather and harvest conditions were excluded from the core measure, the bank said, adding these items made up 8.8 percent of the consumer price index (CPI) basket.
It also said the inflation measure excluded regulated items, which constitutes 19.4 percent of the CPI basket.
(Writing by Cynthia Johnston and Edmund Blair; Editing by Mike Nesbit and Maureen Bavdek) Keywords: EGYPT CBANK/ (cynthia.johnston@reuters.com ; +20 2 2578 3290; Reuters Messaging: cynthia.johnston.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
CAIRO, Oct 25 (Reuters) - Egypt's central bank began publishing a core inflation index on Sunday, a move seen as increasing transparency about monetary policy in a country where price rises peaked at more than 20 percent in 2008.
The bank has, since 2006, used but not published the index, which strips out subsidised goods and volatile items such as food and energy.
Economists have said food price rises have been propping up urban inflation, the most widely watched inflation indicator in Egypt. Energy and some food items are subsidised in Egypt.
'You can analyse the core inflation and from there analyse future inflation,' Deputy Governor Hisham Ramez told a news conference in Cairo to announce the core inflation figure.
Rania al-Mashat, head of monetary policy division at the central bank, said launching the index did not mean the bank would ignore growth as it sought to control price rises.
'Targeting price stability does not mean that we will overlook growth,' she said. 'We are seeking economic growth as well as lowering inflation rates to the bank's comfort zone.'
The bank does not reveal its 'comfort zone.' The economy grew more than 7 percent before the economic downturn, but has since slowed. However, the government still expects growth of more than 5 percent in 2009/10.
'We want to make sure that people understand what inflation is, so that inflation expectations are managed properly,' Mashat said, adding that the index was one step toward implementing an inflation targeting policy.
Commenting on the announcement, Beltone economist Reham ElDesoki said: 'The core inflation index should provide better visibility regarding interest rate decisions by the (central bank) and their underlying rationale.'
INTEREST RATES
ElDesoki said she expected the central bank to keep interest rates on hold, after a series of cuts, 'despite the anticipated changes in headline inflation.' She said the headline inflation figure could hit 15 percent by the end of 2009 or early 2010.
The rising cost of food and drink pushed Egypt's annual urban inflation to 10.8 percent in September, according to the official statistics agency, the first rise in 10 months.
'The main contributor to the month-on-month increase in the headline inflation was prices of fresh vegetables,' the central bank said in a statement, adding that core inflation was 6.3 percent in September compared with 5.8 percent in August.
Core inflation was 23 percent in August 2008, it said. Urban inflation figure peaked at 23.6 percent in August 2008.
Economists said a rise in inflation in September this year was likely to bring an end to the central bank's cycle of loosening interest rates.
Food items like fruit and vegetables with volatile prices dependent on weather and harvest conditions were excluded from the core measure, the bank said, adding these items made up 8.8 percent of the consumer price index (CPI) basket.
It also said the inflation measure excluded regulated items, which constitutes 19.4 percent of the CPI basket.
(Writing by Cynthia Johnston and Edmund Blair; Editing by Mike Nesbit and Maureen Bavdek) Keywords: EGYPT CBANK/ (cynthia.johnston@reuters.com ; +20 2 2578 3290; Reuters Messaging: cynthia.johnston.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.