Capital market analysts believe that the Consumer Price Index (CPI) rose by 0.8-1% in April 2012. The Central Bureau of Statistics will publish the CPI after the markets close tomorrow. The April CPI is usually high, due to seasonal price hikes for Passover.
A 5.9% hike in clothing and footwear prices, 2.4% hike in fruits and vegetables prices, and a 6.3% hike in overseas travel and recreation prices are driving the expected rise in the April CPI. In addition, the government raised electricity rates by 8% at the start of the month.
On the inputs side, the government-set price for gasoline rose by 0.5%, after a last-minute cut in the excise by NIS 0.15 per liter; without the tax cut, the price of gasoline would have risen by 2.5%. Psagot Investment House Ltd. also expects a 0.2% rise in the CPI's housing item (rent), which accounts for 21% of the index.
If the estimates materialize, inflation for the preceding 12 months will exceed 2%, the midpoint of the government's 1-3% inflation target. Although the April CPI is high, inflation is under control and does not yet jeopardize the economy. Consequently, the Bank of Israel will be able to continue its expansive monetary policy, because this level of inflation does not require an interest rate hike. The Bank of Israel is more worried about a decline in the growth rate than an inflationary outbreak, in view of the recession in Europe.
In February, Israel's real interest rate (the nominal interest rate less inflation expectations) again became negative, after being positive for almost a year. 12-month inflation expectations jumped to 2.7% in February, from 2.5% in the three preceding months. If the CPI in April is higher than expected, inflation expectations could rise further.
Published by Globes [online], Israel business news - www.globes-online.com - on May 14, 2012
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