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Israeli Inflation Slows to 1.3% as Growth Moderates

Israel’s inflation rate declined in August as slowing economic growth damped demand and competition between retailers increased.

Annual inflation slowed to 1.3 percent from 2.2 percent, the Jerusalem-based Central Bureau of Statistics reported today. The median estimate in a Bloomberg survey of eight economists had been 1.6 percent. Consumer prices increased 0.2 percent from the previous month. The government target range for annual inflation is 1 percent to 3 percent.

“There is some moderation in economic growth,” said Yaniv Hevron, head of macro-strategy at Ramat Gan, Israel-based Excellence Nessuah Investment House Ltd., before the data was released. “We also see greater competition among retailers.”

A drop in mobile phone service prices and the declining cost of travel abroad contributed to the lower-than-expected inflation rate, said Merav Yiftach, director of consumer prices at the statistics bureau. The cost of foreign travel decreased both because of the strengthening shekel and because school started in Israel at the end of August instead of September.

The Bank of Israel has gradually reduced the benchmark interest rate to 1.25 percent from 3.25 percent in 2011, in a bid to boost the economy. Economic growth is forecast to slow to 3.2 percent in 2014, from 3.8 percent this year, the central bank said June 24.

Hevron said he expects inflation to accelerate in the coming year, led by housing costs. Prices are expected to increase 1.9 percent over the next 12 months, according to a survey of inflation forecasters released by the Bank of Israel on Aug. 19.

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