Israeli September Inflation Stays Steady Near Target Floor

Israel’s inflation remained unchanged in September, defying most economists’ forecasts of a rise, as moderating growth kept it near the low end of the government target.

The annual inflation rate stayed at 1.3 percent, the Jerusalem-based Central Bureau of Statistics reported today, below the median estimate of 1.5 percent in a Bloomberg survey of 12 economists. The government’s target inflation range is 1 percent to 3 percent. Consumer prices remained unchanged compared with the previous month.

The Bank of Israel unexpectedly cut the benchmark interest rate last month by a quarter-point to 1 percent, its ninth reduction in two years, in a bid to boost the economy. Growth is forecast to slow to 3.4 percent in 2014, from 3.6 percent this year, the central bank said in September.

Shmuel Ben Arie, head of local market research at Pioneer Private Wealth Planning in Herzliya, said the CPI figure points to slowing demand and stronger signs of an economic slowdown.

He said the Bank of Israel probably wouldn’t respond with further rate cuts because “the low interest doesn’t allow enough room to maneuver in case there is an acute need for monetary action.”

In addition to cutting rates, the central bank has also been buying dollars to cool the shekel and spur the export-driven economy.

Inflation figures near the target floor “will allow the Bank of Israel to be more aggressive in foreign currency purchases, if the shekel continues to strengthen,” said Ofer Klein, head of economics and research at Harel Insurance & Financial Services, in an e-mailed report.

The central bank has said it would buy at least $5.6 billion in 2013-14 and was prepared to purchase more.

The shekel has strengthened by about 8 percent against the dollar in the past 12 months, making it the best performer among 31 major currencies tracked by Bloomberg.

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