Israel Inflation Unexpectedly Slows as Food Prices Decline

Israeli consumer prices rose less than expected in April, slowing inflation to the lower limit of the government’s target and reviving the possibility of a further interest-rate cut.

Annual inflation slowed to 1 percent from 1.3 percent in the prior month, the Central Bureau of Statistics in Jerusalem said late yesterday. The median estimate in a Bloomberg News survey of nine economists was 1.5 percent. Prices rose 0.1 percent in the month.

The Bank of Israel has reduced the benchmark interest rate 10 times since 2011 to 0.75 percent and purchased about $9 billion in the past year to help weaken the shekel and boost the export-dependent economy. Economic growth is expected to slow to 3.1 percent this year from 3.3 percent last year, according to a central bank forecast in March.

The inflation figure “is in line with our estimate for the past several months that an additional rate cut is needed,” said Uzi Levi, a senior analyst at Infinity Investment Group near Tel Aviv.

Food prices declined 0.3 percent in April, while fruit and vegetable prices dropped 1.3 percent.

The shekel weakened 0.2 percent to 3.4605 per dollar at 11 p.m. Jerusalem time.

Jonathan Katz, an economist at Leader Capital Markets Ltd., said the situation now isn’t the same as at the end of February, when the central bank cut rates after January inflation was lower than forecast. First-quarter growth estimates, due to be released on May 18, will play an important role in the decision, he said, adding that his forecast is for GDP growth of close to 4 percent.

Rate Cycle

“In contrast to the situation three months ago, economic activity is improving, according to most indicators,” Katz said. “The Bank of Israel is expected to hold the rate.”

When the central bank decided at the end of April to keep rates unchanged this month, one policy maker cast the first vote for an increase since the monetary policy committee was created two and a half years ago, signaling the current cycle of rate cuts may be over.

“While the headline inflation rate is very low and could even bother the Bank of Israel somewhat, we doubt that it will result in any action, given the likely transitory nature of the changes in the sub-components,” said Tevfik Aksoy, chief economist for Europe, the Middle East and Africa at Morgan Stanley in London. “That said, it is also likely to be sufficient for the one MPC member who voted for a hike in the most recent MPC to revisit his or her view.”

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