Analysts expect steep CPI rise in June

The VAT hike, higher rent and gasoline, and a seasonal jump in clothing and footwear prices contribute to a projected 0.7% jump in the CPI.

Capital market analysts predict that the Consumer Price Index (CPI) rose by 0.7% in June 2013. This is the largest one-month gain since August 2012. The Central Bureau of Statistics will announced the CPI for June after the markets close tomorrow.

The main items affecting the CPI are the 1% VAT hike to 18%, which will add 0.5% to the CPI for the month, and will also affect the CPI in July and August. The hike in the electricity tariff in mid-May, the 3.5% hike in the price of gasoline on June 1, and the weakness of the shekel during the month, are also factors.

The analysts also estimate that the housing item (rent), which accounts for a quarter of CPI, rose by 0.4%, and that clothing and footwear prices rose by 10%, due to seasonal factors.

Despite the jump in the CPI, analysis doubt that there has been any change in the inflationary environment, which remains low because of the worsening slowdown in economic activity. They attribute the spike to specific events (the VAT hike and seasonal factors). Inflation in January-May 2013 was 0.5%, and was 0.9% in the 12 preceding months through May, below the government's inflation target of 1-3%.

Waiting for Frenkel

"Given the economy's weakness and the absence of inflation risks, we believe that the macroeconomic data support another interest rate cut in the coming months," says Psagot Investment House Ltd. macro analyst Uri Greenfeld. "The strengthening of the shekel against the basket of currencies since the last interest rate cut supports this forecast. However, in the absence of extraordinary events (such as a further sharp strengthening of the shekel until the interest rate decision at the end of the month), the monetary committee will probably choose to wait until the new governor takes up his post before deciding to make another interest rate cut."

It is possible that Jacob Frenkel's appointment as governor of the Bank of Israel could be delayed, after even if it is not, it will take time until he assumes his duties. Meanwhile, macroeconomic data continue to be negative. The latest Israel Consumer Confidence Index, indicates that consumers are pessimistic and the IMF has cut growth forecasts.

Published by Globes [online], Israel business news - - on July 14, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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