Israel Consumer Prices Rise for First Time Since 2014

  • Annual CPI up 0.1% in January; prices fell 0.2% from December
  • Cost of energy, food drives index into positive territory

Israel’s annual consumer price index rose in January for the first time since 2014, finally turning positive after two years of record low interest rates.

The index rose 0.1 percent in January from a year earlier, having declined on an annual basis for 28 months, Israel’s Central Bureau of Statistics said in a statement on Wednesday. Economists in a Bloomberg survey predicted prices would be unchanged on an annual basis. Prices fell 0.2 percent from December, in line with the survey.

Inflation remains well below the Bank of Israel’s target range of 1 percent to 3 percent. Given the regulator’s concern about the impact on exports from a strong shekel, which has been trading near a record high against a basket of currencies, the bank isn’t expected to raise its benchmark rate from 0.1 percent until a more substantial gap opens with U.S. interest rates.

“Inflation in Israel is still low and will remain low because of government efforts to keep prices down, but it’s not going to be negative anymore,” said Ori Greenfeld, chief economist at Psagot Investment House Ltd. in Tel Aviv.“We might see a move from nominal bonds into inflation-linked bonds.”

Greenfeld predicts the annual CPI rate would be at 0.8 percent by year-end, with the central bank likely to hold rates until that time.

Weak Core

Goldman Sachs, in a research note written by Murat Unur and Sara Grut, said energy and food prices were driving headline inflation into positive territory. However, core inflation -- which excludes those factors -- remains weak, largely because of the strong shekel. Goldman doesn’t expect headline inflation to reach the Bank of Israel’s target band until next year, with the central bank remaining on hold until then.

Modi Shafrir, chief strategist in the finance division of Mizrahi Tefahot Bank Ltd. in Tel Aviv, noted price pressures from global inflation and, closer to home, rising wages and rents in Israel. That’s balanced by shekel strength and increased competition that makes it easier for Israelis to buy foreign goods and has helped make items cheaper, he said.

“We continue to believe that inflation will remain around a moderate 0.45 percent this year since there are a significant number of factors that support the continuation of a very low inflationary environment,” he wrote in a research note.

The statistics bureau said it updated the consumer basket this month.

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