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Consumer prices barely rose in March, with inflation up only 0.1% last month, the Central Bureau of Statistics announced yesterday. The March CPI was smack in the middle of the range of analysts' forecasts: from zero to 0.2%. Over the past 12 months, the consumer price index has risen 3.2%, but has dropped 0.9% since the beginning of 2010.

Stanley Fischer, the governor of the Bank of Israel, will have to decide near the end of the month what to do about May interest rates. At the end of March Fischer raised rates by 0.25% to the present 1.5%.

The central bank wants to continue to raise interest rates to what the bank calls "normal" levels. Fischer is waiting for more economic data before making his decision, but analysts now think 2010 inflation will be within the government's and the Bank of Israel's target range of 1% to 3% for the year, and if the economic recovery continues, Fischer will want to continue to raise rates. The CPI has risen since December 2009 at an annualized pace of 1.7%, almost exactly in the middle of the range. The CPI - without housing or fruits and vegetables - is rising even slower, at a 1.2% annual pace.

The figures released yesterday did not surprise Ron Eichel, the chief economist at the Meitav investment house. "There was no significant change and the market is not expected to react one way or the other. The last interest rate increase was not a response to inflation, but in order to bring interest rates to normal levels, and in light of the fact that asset prices look out of balance to Stanley Fischer," he added.

Eichel said the rise in housing costs of 0.6% was a surprise, as this sub-index had fallen for the previous three months, but that was due to a demand for rental housing. He expects Fischer to leave May rates unchanged, and for the April CPI to rise 0.7%.

Culture and entertainment prices rose 1%, while transportation was up 0.8%. These were partially offset by drops in clothing and shoe prices, 4%, fresh fruits, down 3.9%, and household maintenance, down 1%. Cucumber prices took off i, up 21.8%, but electricity costs dropped 4.7%.