(Adds analyst comments and adds core inflation figure)
By Nadine Awadalla
CAIRO, Aug 10 (Reuters) - Egypt’s key inflation rates soared to multi-decade highs on Thursday on the back of energy subsidy cuts agreed with the International Monetary Fund as a condition of its $12 billion three-year loan.
Annual urban inflation for July hit a critical high of 33.0 percent from 29.8 percent in June, the official CAPMAS statistics agency said, the highest since June 1986, and the second highest since Reuters data began in 1958.
Core inflation, which strips out volatile items like food, rose to 35.26 percent year-on-year in July from 31.95 percent in June, the central bank said. That is the highest level since at least 2005, the oldest available central bank records.
Import-dependent Egypt has been hit by soaring inflation since it floated its currency in November, and since then the pound has roughly halved in value.
“Your costs are tied to the dollar so (businesses) have no option but to keep their prices high... It’s all tied in one way or another to the exchange rate,” said Allen Sandeep, head of research at Naeem Brokerage in Cairo.
The currency float was the opening salvo of an ambitious economic reform programme agreed with the IMF, which includes tax increases and subsidy cuts.
In late June, the government raised fuel prices by up to 50 percent, pushing prices higher still for Egyptians battered by austerity measures. Despite the situation, President Abdel Fattah al-Sisi and his government have pledged to push ahead with politically sensitive reforms.
The central bank raised its key interest rates by 200 basis points last month, seeking to ease the inflationary pressure, and is set to meet to decide on rates again later next week.
Inflation could start to cool and fall below 20 percent by the end of 2017 as the effects of the currency float begin to fade, allowing the central bank to cut interest rates, a research note from Capital Economics said on Thursday.
Reporting by Nadine Awadalla; Editing by Amrutha Gayathri, John Stonestreet and Pritha Sarkar