Israel Inflation Rate Declines to Lowest in Nine Months

Israel’s inflation rate declined to a nine-month low in March as the economy slows and global inflationary pressures remain subdued.

Inflation eased to 1.3 percent from 1.5 percent in February, the Jerusalem-based Central Bureau of Statistics reported today. It has stayed below the midpoint of the government’s 1 percent to 3 percent target for six months. The median estimate of 13 economists surveyed by Bloomberg was 1.4 percent. In the month, consumer prices rose 0.2 percent.

“The inflation rate remains comfortably inside the 1-3 percent band and is unlikely to be rising in the near future, leaving ample room for monetary easing,” said Tevfik Aksoy, chief economist for emerging Europe, the Middle East and Africa at Morgan Stanley in London. “The Bank of Israel should have cut last month. A cut of at least 25 basis points is in order.”

The Bank of Israel monetary policy committee, led by Governor Stanley Fischer, kept the benchmark interest rate unchanged at 1.75 percent in March, the lowest in almost three years. The central bank has gradually reduced the rate from 3.25 percent in 2011 in an effort to shore up the economy amid the European debt crisis.

Slowing inflation “isn’t surprising given the apparent loss of growth momentum in the economy,” Aksoy said. The components of inflation show “obvious signs of weakness in demand,” he said, citing a decline in furniture and clothing prices.

Slowing Economy

Economic growth is forecast to slow to 2.8 percent this year, from 3.1 percent in 2012, excluding first-time natural-gas revenues, 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 declined to 1.8 percent, the lowest since 2009, according to a central bank survey released March 17.

“GDP is decelerating,” said Daniel Hewitt, senior emerging-market economist at Barclays Plc, before the announcement. “Globally, inflationary pressures appear muted. There is less pressure on prices everywhere.”

Still, home purchase prices, which aren’t included in the consumer-price index though they’re released at the same time, rose 1.7 percent in the month and 10.5 percent in the past year, which may discourage rate cuts.

The shekel weakened 0.1 percent against the dollar, after gaining as much as 0.3 percent before the CPI announcement. It was trading at 3.6284 per dollar at 5:24 p.m. local time.

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