"Low inflation poses a dilemma for the Bank of Israel, and supports another interest rate cut," said Leader Capital Market analyst Yonatan Katz in response to the 0.2% drop in the Consumer Price Index (CPI) for February. "However, signs of a pick-up in economic activity (higher exports and imports, growth in private consumption, and business sector optimism) will prevent another interest rate cut at this time, despite the continuing appreciation of the shekel."
Katz predicts that the CPI will fall by another 0.3% in March, even though he raised his forecast for the rise in the housing item (rent) from 0.1% to 0.3%. "The CPI for February shows a low inflation environment and a lack of demand pressure in the economy," he says. "The Bank of Israel will seek to stem the rise in home prices to 6.3% in the 12 months through March from 8% in the 12 months through February."
Psagot Investment House Ltd. chief economist Ori Greenfeld also believes that the CPI shows low inflationary pressure and even deflation in the past three months. "If the shekel continues to strengthen, the Bank of Israel may cut the interest rate even if the effect of an interest rate cut on the exchange rate is immaterial while merely avoiding an interest rate hike in the coming months will support the capital market."
Prico Risk Management and Assets CEO Yossi Fraiman says, "The CPI fell by 0.2% as expected, reflecting the slowdown in economic activity and the drop in prices for fruits and vegetables and for clothing and footwear. The market expects a 0.2% rise in the CPI for March, reflecting heavy shopping for Passover."
Published by Globes [online], Israel business news - www.globes-online.com - on March 16, 2014
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