Israeli Inflation Probably Slowed in August on Consumer Protests

Israeli inflation probably eased in August for a second month as consumer protests brought down food costs and end-of-season sales reduced clothing and shoe prices.

Annual inflation slowed to 3.2 percent from 3.4 percent, according to the median estimate of 13 economists surveyed by Bloomberg. The consumer price index advanced 0.3 percent from the previous month, according to the survey. The Jerusalem-based Central Bureau of Statistics is scheduled to release the data at 6:30 p.m. local time today.

“Inflation is moderating,” Victor Bahar, economics department deputy manager at Bank Hapoalim Ltd. in Tel Aviv, said in a telephone interview. “The consumer protests brought down food prices, and the government may decide to reduce indirect taxes as well.”

Prime Minister Benjamin Netanyahu pledged Sept. 4 to ease the cost of living after rallies brought more than 400,000 people onto the streets. Netanyahu said he will act on recommendations from a panel headed by Tel Aviv University economist Manuel Trajtenberg that are due by the end of this month and aim to provide cheaper housing and bring down prices for food, child care and transportation.

On Aug. 29, Bank of Israel Governor Stanley Fischer held the benchmark interest rate at 3.25 percent for a third month after raising it 10 times in the past two years. Inflation has exceeded the government’s 1 percent to 3 percent target since the beginning of the year.

Interest-Rate Swaps

Two-year interest-rate swaps, an indicator of investor expectations for rates over the period, fell four basis points to 2.9 percent. The two-year breakeven rate, which reflects expectations for inflation over the period, dropped eight basis points to 184, the lowest since at least June 2010. That implies an average annual inflation rate of about 1.84 percent.

Economists’ 12-month inflation expectations declined to 2.5 percent from 2.9 percent a month earlier, the central bank reported Aug. 21, bringing it to its lowest since March 2010.

The Bank of Israel cut its forecast for economic growth this year and next on Aug. 2, saying debt-reduction plans in developed countries may lead to a global slowdown. The economy will expand 4.8 percent in 2011 and 3.9 percent in 2012, the central bank said, lowering its forecasts from 5.2 percent and 4.2 percent.

Shufersal Ltd. (SAE), the country’s largest food retailer by market value, has declined by about 30 percent since June, when the protests began, almost twice the decline in the TA-100 benchmark index. Alon Holdings Blue Square Israel Ltd., the second biggest, has declined by close to 40 percent over the same period.

To contact the reporter on this story: Alisa Odenheimer in Jerusalem at aodenheimer@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.

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