Israel June Inflation Rate Rises on Value Added Tax, Fuel

Israel’s inflation rate climbed in June, after the government increased value-added tax and fuel prices rose.

Annual inflation accelerated to 2 percent from 0.9 percent, the Jerusalem-based Central Bureau of Statistics reported today. The median estimate in a Bloomberg survey of 10 economists was 1.9 percent. Consumer prices increased 0.8 percent from the previous month. The government target range for annual inflation is 1 percent to 3 percent.

“We don’t have an inflation problem,” Modi Shafrir, chief economist at Tel Aviv-based I.L.S. Brokers Ltd., said before the announcement. “The rise in inflation stems mainly from the supply side. The demand side will continue to show subdued inflationary pressures.”

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 cut rates 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.

A June 1 increase in value-added tax to 18 percent from 17 percent will probably contribute a cumulative 0.5 percentage points to the June and July indexes, Ori Greenfeld, head of macroeconomic research at Psagot Investment House Ltd. in Tel Aviv, said in a July 1 report. A 3.5 percent increase in fuel prices, due to rising global energy prices, the shekel depreciation and the value-added tax increase, will also feed inflation, he said.

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