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Israel Inflation Probably Declined After Tax Cuts on Consumer Goods, Water

Israeli inflation probably eased in July, remaining within the target range for a fourth month, following government cuts in taxes on consumer goods and water.

The annual inflation rate likely declined to 2 percent, according to the median estimate of 11 economists in a Bloomberg survey. The rate was 2.4 percent in June. Prices rose an estimated 0.7 percent from the previous month, according to the survey. The Jerusalem-based Central Bureau of Statistics will release the data today at 6:30 p.m.

The drop this month “is more of a tax issue,” said Jonathan Katz, a Jerusalem-based economist for HSBC Holdings Plc. “Over the next 12 months I still see inflation above 3 percent, over the target range.”

Inflation will be about 2.6 percent over the next 12 months, the high end of the government’s 1 percent to 3 percent target range, the Bank of Israel said on Aug. 3. Inflation expectations and recent positive signs in the economy make it likely that Bank of Israel Governor Stanley Fischer will raise interest rates, Katz said.

Fischer raised the benchmark interest rate for the first time in four months at the end of July by a quarter-point to 1.75 percent, citing a rapid increase in housing prices. The next rate decision is on Aug. 23.

Israel’s trade deficit narrowed for the first time in five months as exports reached their highest level in more than two years, the Central Bureau of Statistics announced on Aug. 12. Exports increased to $3.8 billion from $2.9 billion a year earlier.

Economic Growth

The economy probably will grow at just below 4 percent over the next 12 months, the central bank said in the April-June inflation report released on Aug. 3.

“Second-quarter export figures were also corrected up sharply, and that along with robust GDP numbers expected tomorrow will make it easier for Fischer to raise rates,” Katz said.

Last year, the government boosted purchase taxes on gasoline and fuel and increased the value-added-tax to 16.5 percent from 15.5 percent to help make up for falling revenue during the global economic crisis. A tax on water, due to a drought, was also implemented. Since then, the drought tax was canceled and the valued-added-tax was reduced to 16 percent.

The benchmark TA-25 stock index has surged by more than 20 percent over the past 12 months, led by Perrigo Co., the world’s largest maker of non-prescription, store-branded drugs, which more than doubled.

To contact the reporter on this story: Calev Ben-David at cbendavid@bloomberg.net.

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