Israel Annual Inflation Rate Rises in May From Six-Year Low

Israel’s inflation rate rose in May from a six-year low the previous month, as electricity prices and cigarette taxes increased.

Annual inflation accelerated to 0.9 percent from 0.8 percent, the Jerusalem-based Central Bureau of Statistics reported today. The median estimate in a Bloomberg survey of 12 economists was 1.1 percent. Consumer prices increased 0.1 percent from the previous month.

“Inflation this month and next is due to higher taxes and an increase in costs,” Rafael Gozlan, chief economist at I.B.I-Israel Brokerage & Investments Ltd., said prior to the announcement. “When this recedes, we will see inflation drop again.”

Prime Minister Benjamin Netanyahu’s government is raising taxes to reduce the budget deficit, which has ballooned as the economy slows and revenue falls short of expectations. The Bank of Israel, led by Governor Stanley Fischer, cut the benchmark interest rate twice in May by a cumulative half-point, bringing the benchmark to 1.25 percent, in an effort to help boost growth.

Economic growth is forecast to slow to 2.8 percent this year, from 3.2 percent in 2012, excluding first-time natural-gas revenue forecast to add another percentage point, according to the central bank.

‘Very Weak’

“Demand is very weak, and will apparently be even more weak in the coming months,” said Gozlan, citing declining consumer confidence due to increasing direct and indirect taxes. “Wages aren’t going up and the labor market isn’t especially strong.”

Still, a June 1 increase in value-added-tax to 18 percent from 17 percent probably pushed prices further up this month, he said.

The 6 percent rise in electricity prices, due to an increase in input costs, and 15 percent jump in cigarettes were offset by declines in gasoline and bread, Bank Hapoalim Ltd. said in a report before the announcement.

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