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September's consumer price index was a big zero, confounding earlier estimates of an increase of 0.4%. This, however, fueled forecasts that the Bank of Israel will cut interest rates by another 0.5% in two weeks, for the second time this month, to encourage economic growth and employment.

The index's annual rate of increase between June and September of this year was a very high 5.9%, despite the government's targeted inflation rate of 1.0%-3.0%. But the central bank believes that very low or even negative indexes can be expected over the coming months in the wake of lower energy and raw material prices in international markets.

According to data published by the Central Bureau of Statistics yesterday, food prices rose 0.3% in September. Important contributors to the increase include the price of instant coffee, which was up 6.6%, the price of cereal, up 5%, and egg prices, up 4.7%. On the other hand, ice cream got 4.1% cheaper, and frozen beef prices fell by 3.8%. The index of fruits and vegetables fell 0.9%. Although tomatoes were up 39.7% in September, cucumber prices rose by 22.7% and beans climbed 20.0%, these were balanced out by a similarly sharp fall in the price of a variety of items, including avocados, which dropped 33.8% and lemon prices were squeezed 24.1%.

Incidentally, housing prices climbed 1.9% last month.

Clothing and footwear prices shed 5.2%, while the cost of healthcare rose 0.9%. Although the index of education, culture and entertainment dropped 1.5%, with day-care rates falling 4.2%, fees and payments to elementary school increased 4.6%. Hotels and convalescent home prices plummeted 18%, and car rentals in Israel sank 22.0%.

In response to the CPI figures published yesterday, Ori Yehudai, chairman of the Manufacturers Association Economics Committee, called on the government to launch a combined fiscal and monetary program to regain market confidence and prevent the economy from sliding into a recession. Yehudai thinks that the central bank governor should lower interest rates.

Yaron Zer, the director of the research department at Yashir investment house, estimates that the trend of falling inflation rates will continue. He forecasts that the October inflation will fall 0.3%, and total just 1.2% for the coming 12-month period.