CPI surprises with 0.3% fall in June

Analysts had predicted that the Consumer Price Index would be unchanged.

The Consumer Price Index (CPI) fell 0.3% in June, the Central Bureau of Statistics reported this evening. This was a major surprise with most analysts predicting that the CPI would remain unchanged last month. Trend figures indicate a current rate of inflation of just 0.6%, below the government target range of 1-3%.

The fall in the CPI reflects the belief that the economic situation is worsening and that growth in the Israeli economy is slowing.

Significant price falls in June included a 3% fall in the price of fuel, a 7% fall in the price of vegetables, and a 12% fall in the price of books. On the other hand, clothing prices rose 4.3% in June, footwear prices rose 3.2%, and housing services rose 0.1%.

The CPI in May was also lower than expected, remaining unchanged while analysts had predicted a 0.3% rise. The CPI rose 1% in the first six months of 2012.

The low level of price rises puts no significant pressure on the Bank of Israel regarding interest rates, and gives it a free hand in determining what level it feels is best for supporting economic activity. Bank of Israel Governor Prof. Stanley Fischer has said that the main restriction regarding the interest rate is the continuing and deepening fiscal uncertainty because Prime Minister Benjamin Netanyahu and Minister of Finance Yuval Steinitz have yet to decide on a future fiscal policy.

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

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

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