The March consumer price index is expected to rise after months of declines but the aggressive fall of the dollar against the shekel in recent weeks is prompting economists to trim their forecasts for April and May. "The March CPI to be published on Sunday is expected to show a rise of 0.2% due to a steep increase of 5.2% in fuel prices, 3.3% in gas prices and higher food and clothing prices and a seasonal upturn in the prices of travel during Pessah, which are offset by seasonal declines in fresh fruit and vegetables prices and lower housing prices," said Ilan Artzi, vice-president of investments at Direct Investment House. Based on that forecast, consumer prices will have fallen at the fastest annual pace in almost three years in March, dropping 0.9% when compared with a year earlier as the appreciating shekel pushed down housing and other dollar-linked prices. "The recent move below NIS 4.10 against the dollar will push dollar-linked and dollar-denominated prices (like housing) lower and maintain technical deflation," said Serhan Cevik, an analyst at Morgan Stanley. Artzi added that the appreciation of the shekel over the past two weeks will weigh on consumer prices in April and May. As a result of the continued fall of the dollar against the shekel, which dropped another 1.2% to NIS 4.057 on Thursday, economists are starting to revise their April and May CPI forecasts downwards. Yaniv Hevron, and economist at Psagot Ofek Investment House Ltd, expects the April CPI to increase by 0.6% down from the previous forecast of 0.8% and the May index to be up by 0.1% against 0.3%-0.4% previously. Similarly, chief economist at IBI Ayelet Nir and chief economist at Union Bank Amir Hayek lowered their CPI forecasts for April from 0.7% to between 0.5% and 0.6%. In its last interest rate report, the Bank of Israel said it expected the consumer price index to rise by 1% or 1.5% in the three months between March and May, following the negative indices in recent months. "The April CPI index could fall even lower than 0.5% if the dollar continues to drop and thus the Bank of Israel needs to cut interest rates by 0.5% in its meeting on April 22 to stop the drift and in an effort to reach the government's inflation target of between 1% and 3% by the last quarter of 2007," said Nir. Hayek estimated that, on the whole inflation in 2007 would be lower than the 2% the central bank was forecasting to reach by the end of the year. "We don't see the inflation rate reaching 2% by this year or in 2008," said Yoav Nardi, alternate managing director and head of the capital markets and investments division at Bank of Jerusalem. Economists and analysts are expecting an interest rate cut later this month after the base lending rate was left unchanged last month, but are mixed as to whether the central bank will lower rates by a quarter percentage point or half. Meanwhile, speaking to the Federation of Israeli Chambers of Commerce, MK and former finance minister Binyamin Netanyahu said he would not rule out using the interest rate as a monetary tool to try and prevent the accelerated appreciation of the shekel.