Inflation running higher than expected

The CPI was unchanged last month; analysts had expected a fall of 0.2%. However, the price of tomatoes fell 37%.

Israel's Consumer Prices Index (CPI) was unchanged in January, at 104.0 points. A "Bloomberg" poll of analysts had predicted a fall of 0.2%. Inflation in the twelve months to January was 2%. Trend figures show the current annual rate of inflation running at 2.3%, which is within the government's price stability target range of 1-3%.

January saw rises in prices of fresh fruit (1.5%), transport (0.6%), food (0.5%), and housing (0.3%). There were notable falls in the prices of clothing and footwear (7.7%) and fresh vegetables (6.2%).

Within the main categories, rents rose 0.5%, after a long period of sustained falls; fuel rose 1.5%, while the price of tomatoes fell 37.6%.

The trend inflation figure of 2.3% is much higher than in the last quarter of 2011. Housing is the most significant item in the CPI, and it accounts for most of the inflation in the past twelve months, as the index without housing rose only 0.9% in the year to the end of January.

However, the Bank of Israel can breathe easy. Price levels are under control, and the welter of data showing a sharp slowdown in economic activity indicate that, at least in the next few months, inflation will not be a macro-economic problem, and the central bank will enjoy very wide room for maneuver in the conduct of monetary policy.

Haim Natan, chief economist at Menorah Mivtachim, comments that "this surprise doesn't surprise us." According to Natan, signs have been building in recent weeks that the fall in real estate prices has run its course. "The Bank of Israel's interest rate cut last month, supposedly meant to prevent the real estate bubble from bursting, seems to have succeeded in pushing the public towards investing in residential property once more, and is liable to set off a renewed trend of price rises."

Published by Globes [online], Israel business news - www.globes-online.com - on February 15, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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