Consumer prices expected to climb 0.8% in July

Economists at Leader Capital Markets predicted that July clothing prices fell by 6% similar to previous years at the end of the summer season while fruit and vegetable prices will have dropped 3%.

August 14, 2007 06:43
2 minute read.
organic vegetables 88

organic vegetables 88. (photo credit: )

The July consumer price index is expected to show a rise of 0.8 percent on the heels of a sharp increase in June driven by the steep fall of the shekel against the dollar over those months and an increase in fuel prices. "The July CPI to be published on Wednesday is expected to show a rise of 0.8% influenced like last month by the 1.6% depreciation of the shekel against the basket of currencies, which will have an immediate effect on home prices and imports," said Ilan Artzi, vice-president of investments at Direct Investment House. "The increase in fuel prices, higher food prices and a seasonal upturn in the prices of travel during the summer peak season will be offset by seasonal declines in fresh fruit and vegetables prices and clothing prices." Economists at Leader Capital Markets predicted that July clothing prices fell by 6% similar to previous years at the end of the summer season while fruit and vegetable prices will have dropped 3%. It believes fuel prices were up 1.6%, travel prices 6% higher and housing prices 2.7% stronger during the month. Ayelet Nir, chief economist at IBI investment house, predicted that the housing component would make up 0.6 percentage points of the 0.8% rise in the July index. Investment houses were almost all in consensus for a gain of 0.8% in the July CPI index apart from Merrill Lynch, which forecast a 0.6% rise in the CPI. Such a showing, would put pressure on the Bank of Israel to cut interest rates by a further 25 basis points to 4% at the end of the month to curb inflation. "The shekel's weakness will have pushed consumer price inflation higher. Beyond the exchange rate effect, consumer price inflation has already been running even above the upper bound of the central bank's target range, as strong growth in domestic demand pushed the economy above its potential," said Serhan Cevik, an analyst at Morgan Stanley. Similarly, Silja Sepping, an analyst at Lehman Brothers, said that although Israel remained in deflation in June, it might have been the last such month, projecting that if the exchange rate prevails at around 4.28, year-over-year inflation could be about 2.4% by year end and overshooting the central bank's the 3% inflation target in the second quarter of 2008. On the other hand, Sepping noted that if the shekel appreciated to 4.20 by the end of this year, inflation could stay in the target range of between 1% and 3%. "Given the favorable economic fundamentals and the prospect for tighter monetary policy, the USD/ILS should strengthen from here. We target around 4.1 by the end of 2007," Sepping said. Businesses delay pay as credit costs rise The payment reliability of local businesses worsened slightly worsened in July as 14.6 percent of businesses were late with their payments for another consecutive month, pointing to a trend of businesses using suppliers' credit to finance their activities, research company Dun & Bradstreet Israel said on Monday. "As financing costs are becoming more expensive, businesses are delaying payments to suppliers," said Reuven Kovent, CEO of D&B Israel. "The consumer price index is expected to continue to rise from its sharp increase of 0.7% in June, making interest rate hikes more feasible and as a result, businesses prefer to use suppliers' credit lines, which are cheaper than bank credit lines." Kovent added that the monthly research showed that many suppliers, in turn, were not prepared to absorb the financing costs and were subsidizing these costs by raising prices charged to their customers.

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