Consumer Price Index shocks analysts with 1.1% leap in July - Haaretz

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Last update - 05:37 16/08/2007

Consumer Price Index shocks analysts with 1.1% leap in July

By Moti Bassok, Haaretz Correspondent

The Consumer Price Index surged by 1.1 percent in July compared with the previous month, a far higher figure than economic analysts had expected.

This means inflation is running at an annual rate of 3.1 percent, which is beyond the government-set target range of between 1 to 3 percent.

Given the leap in the July Consumer Price Index, analysts are growing more confident that the governor of the Bank of Israel, Stanley Fischer, will raise interest rates for September. Most still believe Fischer will settle for a 0.25 percent increase, but some think he might
op

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t for a more extreme half-percent hike.

In 2006, inflation was negative, well below the bottom of the target range denoting price stability. This year inflation seems to be surging over the top of the range.

From the start of 2007, the CPI has risen by 2.1 percent. If fruit and vegetables are excluded from the calculation, the CPI rose by 2.3 percent from January to the end of July.

Without the housing index, which is heavily affected by the shekel-dollar exchange rate because of the habit of linking prices to the greenback, the CPI has risen by 1.9 percent since January 1.

Over the last 12 months, the CPI has risen by 0.3 percent.

The main reason that the indicator climbed so high in July was the plunge of the shekel against major foreign currencies, mainly against the dollar. The exchange rate affects not only housing but other sub-indexes as well. Housing alone rose by 3.8 percent, the Central
Bureau of Statistics said Wednesday.

Also, a 4.3 percent hike in tenant-owned housing services lifted the July CPI by 0.7 percent. The index for rent, which is also affected by the shekel-dollar rate, rose 2.2 percent.

Summer sales on clothes

Commenting on the surge in consumer prices, Ohad Marani, the chairman of the Economic Committee at the Manufacturers Association, said the Bank of Israel could leave interest rates unchanged at the month's end, because inflation should remain within the government's target range, based on the present exchange rate of the dollar.

Marani added that Israel's economic condition remains good, tax collection is running higher than expected (another indicator of economic strength), Israel's risk premium is steady and the country is running a surplus in its balance of payments.

The transport index, which also heavily impacts the general CPI, rose by 1.6 percent in July. The index of entertainment and culture rose by 1.5 percent. Housing maintenance prices rose by 0.6 percent.

Countering these effects, to a degree, was a seasonal decrease in the prices of fresh fruit and vegetables, by a hefty 4 percent. Also for seasonal reasons, the prices of footwear and clothing fell, by 3.5 percent, and the price of furniture and household equipment retreated by
0.3 percent.

However, one item that every household would feel is that food prices rose by 2 percent in July, and the price of white flour jumped by 6.3 percent.

Noodles, another staple in many a household, rose by 5.6 percent.

One striking, rather more esoteric item, was the price of renting a car to travel inside Israel. That price shot up by 30.9 percent. This makes the 1.9 percent hike in the price of fuels and oil for cars seem relatively tame.

In comparison, the consumer price index in the United States rose by 0.1 percent in July compared with June. In this case, the increase was the lowest that U.S. shoppers had seen all year. The core index, which excludes oil and food, rose by 0.2 percent in July compared with June. But against July 2006, the core index rose by 2.2 percent. Unlike in Israel, the figures were exactly what analysts had predicted.

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