arrow down 88.
(photo credit: )
The consumer price index fell 0.3 percent to 102.7 in January, led by drops in clothing and footwear, home maintenance, and housing prices, the Central Bureau of Statistics said Wednesday, but the decline was less than analysts had anticipated.
"This was a bit on the high side," said Leader & Co. analyst Jonathan Katz, noting that consensus forecasts had put the drop at 0.4% to 0.5%.
Excellence Nessuah chief economist Shlomo Maoz said he was expecting the month's inflation to fall 0.6%.
Both Katz and Maoz said the 2.7% rise in fresh produce prices was surprising, since they had measured declines in that category. Katz added that he had expected a greater drop in clothing and footwear prices - down by fully 7% instead of the bureau's reported 5% slide - given the seasonal drop in winter fashions. "This year it was somewhat more moderate," he said.
Home maintenance costs fell 1.9% in January, while housing prices fell 1%, which Katz noted was sharper than expected, since it exceeded the concurrent drop of the shekel against the dollar, and therefore also contributed to a more negative than expected inflation rate.
Over the past 12 months, the overall CPI rose a total of 2.7%, while the index without fresh fruits and vegetables rose 3%, and 1.9% excluding housing prices. Katz said his core CPI - excluding housing, seasonal elements and fuel - rose 1.5% over the past 12 months, which he called moderate. The Bank of Israel has set a price stability target of 1% to 3% inflation, annually.
"Trends are still supportive of stable, low inflationary pressure," Katz said.
He believes Bank of Israel Governor Stanley Fischer will "very, very likely" raise the interest rate one-quarter or one-half a percentage point above the present 4.75% rate, in line with the central bank's pattern of raises in the past months, though he called the previous moves "surprising."
"I think [Fischer] is concerned that we have had a 2.5% decline in the shekel's value against the dollar since the beginning of the year," and would also anticipate the US Federal Reserve's predicted move to raise the dollar interest rate to 5% by May, he said.
Maoz agreed, commenting that "There is no need to raise [rates], but he will."
Ohad Marani, chairman of the Manufacturers Association of Israel's economic committee and chairman of Oil Refineries Ltd., said "It is time for the Bank of Israel to hold a thorough and transparent discussion in which it will inform the public of the considerations determining its interest rate policy ... whether the interest rate is determined solely by inflationary considerations and expectations of inflation in Israel, or in accordance with changes in the US interest rate and its potential effects on the dollar rate in [Israel], in addition to the stability of fiscal policy and the rate of inflation."
Katz estimated that inflation would total 2% to 2.3% in 2006, while Maoz forecast a 2.5% rise in prices for the calendar year.