Finance Ministry officials are predicting that the governor of the Bank of Israel, Stanley Fischer, will lower interest rates for March by 0.25% at the end of this month to 4%; after the January consumer price index was unchanged, as expected.
The Central Bureau of Statistics (CBS) announced on Friday that the January price index was 0%, and for the past 12 months the CPI has risen 3.5%; a number above the Bank of Israel and cabinet's target range for inflation of 1-3%.
The CPI for the top two deciles of the population rose 0.1% in January, while the index for the poorest 20% of the Israeli population rose much more: 0.4%.
The zero inflation rate for January only strengthened the opinions of government economists in Jerusalem that Fischer will lower interest rates, despite the 3.4% inflation rate for all of 2007. Lowered inflationary pressures and strength of the shekel will allow him to cut rates, which many hope will slow the dollar's slide against the shekel and provide some relief for exporters.
The recent interest rate cuts in the U.S. will also certainly influence Fischer. Forecasts are for the chairman of the Federal Reserve, Ben Bernanke, to lower rates once again soon from their present 3.5% level.
Ohad Marani of the Manufacturers Association responded to the unchanged January CPI saying the Bank of Israel needs to lower rates in order to moderate the shekel's continued appreciation against the dollar. Marani feels lowering interest rates will slow down the flow of speculative capital into Israel.
According to the figures from the CBS, there were increases in prices in January for fruits and vegetables, food, communications and health services, furniture and home furnishings. These were offset by drops in prices for housing, clothing and shoes, and transportation.
Without housing prices, the January CPI would have risen 6.6%.
Over the past three months, from October 2007 to January 2008, the consumer price index has risen at an annualized rate of 4.5%. Over the past 12 months, the consumption basket for the poorest 20% of the population has risen 3.2%, while that of the richest 20% is up 3.9%.
Other major factors in the January CPI included food prices, up 1.2%. Rice rose, in particular, by 8.5% and noodles 8.1%. Over the past 12 months, food prices are up 7.3%, well above the overall CPI.
Fruits and vegetables rose in January due to the harsh weather, and were up 7.2%. Fresh vegetables were 14.1% more expensive, much more than fresh fruits' 4.8% increase. Over the past 12 months, fruit and vegetable prices have gone up 9.7%.
Housing prices were down 1.1% in January, but are up 1.2% over the past 12 months. The price of maintaining a house rose 0.2% last month, but 5.4% in the last 12. Furniture prices were up 0.5%.
Clothing and shoe prices dropped a big 5.9% in January, but are up 0.5% over the past 12 months.
Prices for culture, education and entertainment were unchanged last month, and up 2% over the past year.
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