Dollar rises slightly after deep plunge

Every drop of 1% in dollar's value translates to 0.3% drop in Israel's CPI.

April 26, 2007 12:24
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The US dollar was trading at NIS 4.015 on Thursday afternoon, after plummeting earlier in the day to NIS 4.004 - its lowest point since September 2000. The dollar was also down against the Euro, and was trading at 1.361 at midday Thursday. A continual slide in the dollar's value makes it difficult for the Bank of Israel to keep to a target inflation of 1-3%, as every decline of one percent against the shekel translates to a 0.3% drop in Israel's consumer price index. An 8.5% drop in the dollar in 2006 caused an approximate drop of 2.5% in the CPI - one of the main reasons inflation for 2006 fell outside the target rates. One of the reasons for the correlation between the dollar and the CPI is that many prices in Israel - especially housing - are set in dollars, a lingering result of zooming inflation and the subsequent collapse of the "old shekel" in the early 1980s. Bank of Israel Governor Stanley Fischer has argued that today, there is no reason to tie the value of the shekel to the US dollar, and has urged the public to "use shekelim."

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