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Israel Inflation Rate Rises in July on Indirect Tax Increase

Israel’s inflation rate climbed in July for a third month after the government increased sales taxes.

Annual inflation accelerated to 2.2 percent from 2 percent, the Jerusalem-based Central Bureau of Statistics reported today. The median estimate in a Bloomberg survey of 10 economists was 2.2 percent. Consumer prices increased 0.3 percent from the previous month. The government target range for annual inflation is 1 percent to 3 percent.

“Only indirect taxes are driving inflation,” said Victor Bahar, deputy manager of Bank Hapoalim Ltd.’s economics department, before the announcement. “You can’t see any evidence of strong internal demand.”

Prime Minister Benjamin Netanyahu’s government raised taxes to reduce the budget deficit, after growth slowed and revenue fell short of expectations. The Bank of Israel kept rates unchanged at the end of June and July, after cutting twice in May to help boost growth, bringing the benchmark to 1.25 percent, the lowest since March 2010.

Economic growth is forecast to slow to 3.2 percent in 2014, from 3.8 percent this year, the central bank said June 24.

Value-added taxes were increased by 1 percentage point to 18 percent on June 1, and some “leftover” effect was felt in July, Bahar said. The sales tax on alcohol was raised at the beginning of July. The increases were partially offset by a 1.2 percent decline in the price of gasoline, Bank Hapoalim said in a July 17 report.

House prices, which aren’t included in the consumer price index but are reported at the same time, are a focus of attention for the bank, Bahar said. They have declined in the past two months after a 10 percent jump over two years, according to preliminary figures.

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