Israel Inflation Probably Slowed in May as Fuel Prices Declined

Israeli inflation probably slowed in May as fuel prices declined and economic growth moderated.

Consumer prices likely rose 0.3 percent from the previous month compared with 0.9 percent in April, according to the median estimate of 12 economists surveyed by Bloomberg. The annual inflation rate declined to 2 percent from 2.1 percent, according to the survey. The Jerusalem-based Central Bureau of Statistics will release the data at 2 p.m. local time today.

Economic growth is expected to slow to 3.1 percent this year from 4.8 percent in 2011, according to central bank estimates, as Europe grapples with its financial crisis. More than 40 percent of Israel’s gross domestic product is made up of exports with Europe one of the largest markets. Central bank Governor Stanley Fischer said Israel is preparing for various scenarios in Europe.

“The decline in growth is hurting demand and this is expressed in the consumer price index,” Chaim Natan, chief economist at Menora Mivtachim Investment House, said in a telephone interview. “Fischer won’t have any choice but to lower the interest rate because growth is slowing and inflation is under control.”

The Bank of Israel monetary committee, led by Fischer, held its benchmark interest rate at 2.5 percent for a fourth month at the end of May. The committee is expected to leave the rate unchanged at its next decision on June 25, according to 13 of the 21 economists surveyed by Bloomberg at the end of May. Eight said the panel would cut by a quarter-point.

Deficit Widens

Israel’s current account deficit widened in the first quarter to the most in more than 11 years, as the trade balance worsened, the bureau reported June 14. The crisis in Europe led to a decline in exports, the bureau said. Europe purchases about one-third of Israeli exports.

Slowing global growth has moderated oil prices, helping to bring about a reduction in the price of Israeli gasoline. The price of a liter of gasoline was cut by 1.8 percent in May, with 95 octane gasoline dropping to 7.65 shekels, from 7.79 shekels the previous month, the Ministry of Energy and Water Resources said April 30.

Economists’ 12-month inflation expectations fell to 2.3 percent on average from 2.6 percent the previous month, the central bank said on May 20. The government’s target is 1 percent to 3 percent.

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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