Consumer prices index higher than expected [pg. 17]

April 15, 2006 22:22
2 minute read.


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The consumer price index rose 0.3 percent in March to 103.6, led by a rise in food and housing prices, the Central Bureau of Statistics said Friday. The increase was at the high end of analysts' expectations. According to the median estimate of five economists surveyed by Bloomberg, consumer prices were expected to rise 0.2% for the month. Consensus estimates ranged from 0.1% to 0.3%. Prices rose 0.6% in February, with annual inflation accelerating to 3.1% from 2.7% in January. The main factors driving the index up in March were a steep rise in rents, a drop in the shekel against the dollar, rising food, vegetable and fruit prices, and higher telecommunications costs. These increases were partially offset by drops in the price of gasoline and electricity as well as seasonal reductions in clothing and shoes. Food prices went up 0.8%, housing costs rose 1.2% and communication prices rose 0.9% last month. The price of meat, chicken and fish rose 1.9%, mainly due to the spread of bird flu to Israel. The president of the Federation of the Israeli Chambers of Commerce, Uriel Lynn, said that while April and May would also see increases in consumer prices, meat and chicken prices, in particular, would continue to be influenced by the avian flu. Economists predict that prices are likely to rise 0.6% in April. Clothing prices dropped 4.4% in March due to end of season sales, and transportation prices went down 0.3% due to a drop in fuel prices early in the month. The CPI has risen 0.6% since the beginning of the year and 3.6% over the past 12 months. "As long as the shekel is relatively calm and strengthening against the major currencies, this will postpone interest rate increases until the Fed raises rates," said Jonathan Katz, an analyst at Leader & Co, speaking before the release of the March CPI as analysts expected a low increase. However, with a slightly higher CPI and with annual inflation now forecast by some analysts to rise to 3.2%, above the government target of 1-3%, some believe there will be increased pressure for on Governor of the Bank of Israel, Stanley Fischer, to raise interest rates to 5.25% by the end of this month. However some economists and analysts are divided over the likelihood of an immediate interest rate hike. Lynn said that for the time being there was no room to raise the rate as there were no indications of inflationary pressures that would endanger the economy's stability. Ohad Marani, chairman of the Economics Committee at the Manufacturers' Association and chairman of Oil Refineries Ltd., agreed, saying, "There is no need to raise interest rates by the end of the month." He said that the interest rate should remain unchanged because annual inflation was still forecast at 1-3% target, the high 8.8% unemployment rate, the government's responsible fiscal policy and the revaluation of the shekel against the dollar over the last two weeks. Lynn said that despite impressive economic growth during 2005, the exchange rate had remained stable and the shekel even showed signs of strengthening. Assuming US Federal Reserve interest rates reach as high as 5.25% by the end of 2006, rates in Israel will hit 5.75%, the Leader & Co. investment house said in a note to investors. Bloomberg contributed to this report.

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