Nov. 10 (Bloomberg) -- Egypt’s inflation rate increased for a second month in a row, backing the central bank’s decision to halt a series of cuts that pushed the key interest rates to a three-year low.

Urban inflation, the benchmark that the central bank monitors, accelerated to 13.3 percent in October from 10.8 percent the month before, the Cairo-based Central Agency for Public Mobilization and Statistics said today on its Web site. Nationwide inflation picked-up to 12.8 percent from 10.2 percent. Urban prices increased 2.2 percent in the month.

“The central bank will probably maintain interest rates in December as inflation next month may also be at a high level,” said Alia Mamdouh, senior economist at Cairo-based investment bank CI Capital. She had expected inflation to ease to 10.2 percent. “It’s still not the time to raise rates because the economy is still in the recovery stage,” she said.

The central bank held its benchmark overnight deposit rate at 8.25 percent on Nov. 5, saying there were “encouraging signs” that the global economy has stabilized while local fiscal and monetary measures would help the domestic economy.

Economic growth in the most populous Arab country accelerated to 4.9 percent in the third quarter from 4.7 percent in the previous three months. Growth is still below the average 7 percent achieved in the three fiscal years through June 2008 after the global financial crisis hurt revenue from tourism, the Suez Canal and foreign direct investment.

Food Costs

Investment bank Beltone Financial had forecast inflation would accelerate to 11.5 percent, while Simon Kitchen, senior economist at investment bank EFG-Hermes Holding SAE, had forecast 10.5 percent.

Food prices, the biggest component of the consumer prices index, rose an annual 22.2 percent in October, up from 17.4 percent in the previous month, the statistics agency said.

Urban inflation may accelerate to 17 percent by the end of the year, Reham El-Desoki, senior economist at investment bank Beltone Financial, said in an e-mailed statement.

The rate of core inflation, which excludes the cost of fruit and vegetables along with regulated prices, rose to 6.5 percent in October from 6.3 the previous month, the highest measure since July 2009, the central bank said in a statement on its Web site today.

Price Stability

The central bank, in its Nov. 5 statement, said it “will continue to closely monitor all economic developments and will not hesitate to adjust the key Central Bank of Egypt rates to ensure price stability over the medium-term.” Unlike in its previous five statements, the bank did not say it was ready to take measures to contain the adverse effects of the global recession.

Third-quarter economic growth was led by the construction and telecommunication industries. Shares of Orascom Construction Industries, Egypt’s largest publicly traded builder, have gained 81 percent this year, outperforming the benchmark EGX30 index, which gained 49 percent. The Egyptian Co. for Mobile Services, the country’s biggest mobile phone operator, has risen 36 percent.

To contact the reporter on this story: Alaa Shahine in Cairo asalha@bloomberg.net.

Last Updated: November 10, 2009 10:49 EST