Israel Inflation Quickens on Clothing, Food

Israeli consumer prices rose more than expected in October because of increased costs for fruit and vegetables, and clothing, the Jerusalem-based Central Bureau of Statistics said today.

Annual inflation quickened to 1.8 percent, up from 1.3 percent the previous month and above the 1.5 percent median estimate in a Bloomberg survey of 14 economists. Consumer prices rose 0.3 percent on the month.

Clothing costs rose 6.4 percent on the month, while fruit and vegetable prices gained 5.9 percent. The Bank of Israel won’t change its monetary policy until it sees a broader-based increase in costs, Tevfik Aksoy, chief emerging-markets economist at Morgan Stanley in London, said in an e-mailed note.

“While these caused the headline CPI inflation to come out as a surprise, the rest of the sub-categories display a tame picture and given the transitory nature of the causes of inflation hike in October, we do not think that it will have any immediate impact on” Bank of Israel decisions, Aksoy said.

The central bank has lowered the lending rate nine times 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. The bank will probably keep the rate at 1 percent until next year, when its next move might be an increase, Aksoy said.

It was the third straight month that inflation stayed below mid-point of the government’s 1 percent-to-3 percent target range for annual inflation.

Manufacturers Seek Cut

With inflation moderate and the shekel appreciating, some manufacturers are calling for an additional lending rate cut. Three of the 18 economists surveyed by Bloomberg at the end of October predicted the central bank would lower the benchmark by a quarter-point at the end of the month.

Third-quarter growth, which will be reported on Nov. 17, may slow to 3.5 percent from 5 percent in the previous three months, according to a Bloomberg survey of four economists.

In addition to cutting rates, the central bank has also been buying dollars to cool the shekel and spur the export-driven economy. The bank has said it would buy at least $5.6 billion in 2013-14 to offset the effect of natural gas production on the shekel.

It is also making additional purchases “in cases of exchange rate fluctuations that are not in line with fundamental economic conditions,” according to a May central bank statement.

The shekel has strengthened more than 12 percent against the dollar over the past year, making it the best performer among 31 major currencies tracked by Bloomberg.

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