CPI up a surprising 1.1% in July

At the end of July, Bank of Israel Gov. Stanley Fischer kept the interest rate at 3.5% for the seventh month in a row.

August 17, 2005 11:23
3 minute read.


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Israel's Consumer Price Index rose 1.1 percent in July - after a 0.1% rise in June - led by housing, transportation-communications and culture-entertainment indices, which rose 2.9%, 2.5%, and 1%, respectively, the Central Bureau of Statistics said Monday, adding that the CPI has risen 1.6% since the beginning of 2005. "This was a surprise," said Shlomo Maoz, chief economist at Excellence Nessuah Securities Ltd., who attributed the rise to the growing fuel and housing prices, alongside the devaluation of the shekel. Fuel prices rose 7.6% in July. He predicted that inflation would total 2.5% to 3% this year, with continued high inflation rates over the next three months further encouraged by the reduction of the VAT from 17% to 16.5% to take effect in September. Federation of Israeli Chambers of Commerce President Uriel Lynn noted that "almost every year the July CPI is relatively high," as a result of a yearly wave of spending on education, culture, entertainment, transportation and communications, compounding higher consumer spending in the summer months. He argued that recent rises in fuel costs were not being reflected in the July CPI, and will influence the August CPI "only if the trend continues." According to the FICC forecast, inflation will total 2% by the end of 2005. EcoEnergy CEO Amit Mor estimated that the average Israeli household's spending on fuels and energy is NIS 350 to NIS 400 monthly above the average energy expenditure in 2003. "Coal prices also doubled in the past two years, causing increases in the cost of generating electricity," Mor said, noting that 80% of energy production in Israel is based on coal. He predicted that oil prices would rise to $100 per barrel or beyond in the event of a "major disruption" to supplies, but will likely fall back down towards $30 within several years, as oil-exporting nations and natural gas refineries increase productivity. The CPI's rise in July was tempered by lower prices in the clothing-footwear and fruits and vegetables indices, which fell 6.1% and 1.7%, respectively. Prices for fresh fruits fell 4.1%, while fresh vegetable prices sank 2.6%. In seasonally adjusted terms, clothing and footwear prices only fell by about 1.5%, the CBS noted. Given rising inflation, fuel prices, public-sector wages, and government spending, Maoz suggested that the September interest rate should rise, but could not say what the Bank of Israel's decision would be. The Israel Manufacturers Association said that predictions that the inflation target will be met - alongside the stability signaled by Ehud Olmert's speedy appointment in place of Binyamin Netanyahu as finance minister, at the helm of the Treasury and cabinet approval of the budget, allow the central bank to keep the interest rate down and encourage economic growth. At the end of July, Bank of Israel Governor Stanley Fischer kept the interest rate at 3.5% for the seventh month in a row.

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