Israeli Inflation Stays Below Target Mid-Point for Fifth Month

Israeli inflation remained below the mid-point of the central bank’s target range for a fifth month in February as domestic demand remained weak.

The inflation rate stayed at 1.5 percent, matching the median estimate of 14 economists surveyed by Bloomberg, the Jerusalem-based Central Bureau of Statistics reported today. The government’s target is 1 percent to 3 percent. In the month, consumer prices were unchanged.

“The Bank of Israel is not facing an inflation problem, quite the opposite,” said Tevfik Aksoy, chief economist for central and eastern Europe, the Middle East and Africa at Morgan Stanley in London. “There seems to be no apparent reason to expect any change in the inflation outlook, given the lack of domestic demand pressure.”

The Bank of Israel monetary policy committee, led by Governor Stanley Fischer, left the benchmark interest rate unchanged for a second month in February at 1.75 percent, after gradually reducing it from 3.25 percent in 2011 in an effort to shore up the economy amid the European debt crisis.

The Bank of Israel is likely to cut rates by at least 25 basis points “soon,” Aksoy said.

Economic growth slowed to 3.1 percent in 2012 from 4.6 percent the previous year, the Central Bureau of Statistics said March 10. Excluding first-time natural-gas revenues it is expected to shrink further in 2013, according to the central bank. About 40 percent of Israel’s gross domestic product is made up of exports, with Europe one of the largest markets.

Economists’ average 12-month inflation expectations have been steady at 1.9 percent since November, according to a central bank survey.

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