July inflation just 0.5%

Analysts had expected the CPI to show a rise of 0.7-0.8%. Annual inflation is running at 0.9%, well within the government's target range, but housing prices continue to rise.

Israel's Consumer Price Index (CPI) rose by 0.5% in July, from 105.9 points to 106.4 points, the Central Bureau of Statistics announced this evening.

Capital market analysts had expected the CPI to show a rise of 0.7-0.8% for July. The CPI normally rises sharply in July - it rose by 1.1% in both 2008 and 2009.

Large rises were recorded in July in prices of fresh produce (7.1%), transport (1.6%), home maintenance (1.2%), housing (1.0%), culture and entertainment (0.9%), and healthcare (0.5%).

These rise were offset by falls in prices of clothing and footwear (9.0%), and food (0.4%).

More detailed figures show a 7.4% rise in domestic water prices in July, and a 16.1% rise in prices of books.

Since the beginning of the year, the CPI has risen 1.1%. The index excluding energy has risen 1.4%; the index excluding fruit and vegetables has risen 1.0%, and the index excluding housing has risen 0.6%.

In the past twelve months (August 2009 to July 2010), the CPI has risen 1.8%.

Trend figures for the period April to July 2010 show an annual rate of inflation of 0.9%. This is well within the government's price stability target range of 1-3%. Excluding housing, the rate is a negative 0.9% (housing has contributed 45% of inflation so far this year), and excluding housing and fruit and vegetables a negative 1.5%.

The Wholesale Price Index rose 0.3% in July.

On the one hand, the July CPI figure is an indication that there is no immediate danger from inflation in Israel. On the other hand, housing prices continue to rise, a factor that was at the center of Governor of the Bank of Israel Stanley Fischer's decision to raise interest rates last month.

Mizrahi Tefahot Bank (TASE:MZTF) chief strategist Ronen Menahem predicts that there will be no interest rate hike for September, despite Fischer's decision to bring rates back to normal levels. "The low CPI figure and the economic slowdown in Israel and overseas should tip the scales against raising rates," he says.

Published by Globes [online], Israel business news - www.globes-online.com - on August 15, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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