April inflation hits five-year high

The median estimate of 12 economists surveyed by Bloomberg was 4.2%.

inflation arrow up 88 (photo credit: )
inflation arrow up 88
(photo credit: )
Israeli inflation accelerated more than expected to an annual 4.7 percent in April, the fastest pace in five years and exceeding the government's target range for a fifth consecutive month. The inflation rate rose from 3.7% in March, the Central Bureau of Statistics said Thursday. The median estimate of 12 economists surveyed by Bloomberg was 4.2%. For the month, prices rose 1.5%. Inflation has quickened on the back of higher world prices for energy and other commodities, offsetting the impact of a strengthening shekel and fueling speculation that the Bank of Israel may start to reverse this year's rate cuts. The bank last reduced its base lending rate to a record low 3.25% at the end of March. "When it cut interest rates, the Bank of Israel thought the shekel's appreciation together with worldwide economic slowdown would cut inflation," Rafael Gozlan, chief economist at Prisma Capital Markets Ltd., said Thursday. "That hasn't happened because we are seeing strong local demand from consumers." Economists are divided over the Bank of Israel's next rate decision on May 26. Eight out of 13 surveyed by Bloomberg before Thursday's report said the bank would keep the main lending rate at 3.25%, while the others forecast a quarter-point increase. The yield on the government's Shahar bond due in 2016 finished at 5.77% Thursday, up 0.45 percentage point from two months earlier, pointing to expectations for higher inflation and rates. Bank of Israel Governor Stanley Fischer is trying to steer inflation back into the government's target range of 1% to 3%. In its last quarterly inflation report on May 5, the bank said price growth would probably return to the target in the second half of the year. While the central bank forecasts that economic growth will ease to 3.2% this year, its slowest pace since 2003, unemployment declined to 6.5% in February, the lowest in a decade. The shekel has weakened 2% since it reached its strongest in 11 years against the dollar on March 13. The key rate may have to rise to 4% before Fischer can bring inflation under control, Gozlan said. (Bloomberg)