Bank Leumi today analyzed the 0.3% rise in the Consumer Price Index (CPI) in February, which brought inflation for the last 12 months to 4.2%, and made some predictions for the future.
Bank Leumi focused on one of the current burning issues in Israel - home prices. The bank says that the tenant-owned dwelling services item, derived from rent on renewed leases, continues to rise by an annualized rate of 5-7%, contributing to the high inflationary environment.
The bank says that home prices, as measured in the housing prices survey, derived from prices in sales reported to the Israel Tax Authority, rose by an annualized 16% in December 2010. "This is a decline from the annualized rate of 20% and higher in the first half of 2010. However, this is still a very high rate, and we believe that the process of a more substantial easing in home prices will be drawn out," concludes the bank.
Bank Leumi predicts that 12-month inflation rates will continue to climb, due to inflationary pressures from home prices and high commodities prices. In view of the high inflationary environment on one hand and the robustness of the Israeli economy on the other, the bank believes that the Bank of Israel will have to pick up the pace of its interest rate hikes. The bank believes that rapidly rising interest rates could ultimately ease the surging inflation later in 2011.
Published by Globes [online], Israel business news - www.globes-online.com - on March 17, 2011
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