January CPI: -0.5%
Will Fischer lower rates even more?
The January consumer price index fell by half a percent, making it the third month in a row with negative inflation, announced the Central Bureau of Statistics last evening. Economists had forecast a negative CPI of between 0.5% and 0.7%.
Given the large drop in January inflation, the Governor of the Bank of Israel, Stanley Fischer, is now expected to lower February interest rates by at least 0.25%. Israeli short-term interest rates are now at 1%, the lowest level in history, and some economists are even predicting that Fischer will lower rates next week by 0.5%.
The 0.5% decrease follows the negative 0.6% and 0.1% CPIs in December and November respectively. Analysts and economists also expect inflation to remain negative in the next few months. This is the lowest January CPI since 2005, when it fell 0.6%.
Most categories of goods and services fell in price in January, lead by shoes and clothing, down 3.4%, and transportation, down 1.1%. Fuel prices fell 5.5% and the cost of vacations both in Israel and overseas were down 3.6%. Dairy products went down 1.3%.
Housing prices fell 1.1% and fresh fruit was down 0.9%. In total, food costs fell 0.6% in January.
However, there were categories that saw price increases: Fresh vegetables were up 1.1% and rent rose 0.8% while household goods and furniture rose 0.8%. Cosmetics rose a big 3.9% and local taxes were up in January - the start of the new year, when tax rates are adjusted - by 0.9%.
The price of bus transportation was up 2.9%.
Over the past 12 months, from February 2008 to January 2009, the CPI rose 3.3% - slightly above the government's maximum inflation target of 3%. The original forecasts for 2008 were 1-3%, but total inflation for the year was 3.8%. In fact, inflation hit 4.4% in the first nine months of 2008, and only the negative CPIs at the end of last year lowered that figure.
The annualized inflation rate for the last four months, from October 2008 through January 2009, is only 0.6%, well below this year's target range of 1-3%.
Other food products that fell in price were rice, down 4.1%, and margarine, 3.8%. Fresh fish went up by 7.5%, and if you ate your meals at work, the price increased by 6.4%.
Uriel Lynn, the president of the Chambers of Commerce, said the January index was a strong and clear signal to politicians that they need to form a unity government quickly to overcome the difficult economic situation.