Israeli Consumer Prices Jump a Surprising 0.3% in October

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The consumer price index for October rose 0.3%, surprising the many analysts who had expected a drop of around 0.1%.

The October index, which was released Friday by the Central Bureau of Statistics, shows that inflation over the past 12 months was 2.4%, within the annual target range of 1% to 3%. October price rises were notable in clothing and shoes at 6.4% and fruit and vegetables at 5.9%.

The price of tomatoes shot up 64% and contributed 0.1% to the index’s rise for the month. Among foods that declined were tea (-6.1%), fresh fish (-4.4%) and fresh chicken (-3.5%).

On Wednesday, upon taking office as governor of the Bank of Israel, Karnit Flug said the central bank’s goal of achieving price stability had been achieved. She said such an accomplishment was essential for a growing economy and should not be taken for granted.

Before Friday’s release, the prospects were considered high that the Bank of Israel would lower its interest rate from 1% to 0.75%. If this still happens, it will be motivated by the shekel’s continued strength and the European Central Bank’s decision to reduce the euro zone’s rate to 0.25%.

“The index is surprising and runs counter to the trend from the previous month. The high figure indicates renewed demand, which is the main catalyst for growth in a healthy economy. It appears that the Israeli consumer has ignored the recent [stringent government] financial measures and thinks the recent massive tax revenues collected by the government will ease much of the tax burden,” said Shmuel Ben-Arieh, director of domestic market research at Pioneer Financial Planning.

“The index went up despite a sharp drop in world fuel and energy prices. A lowering of the interest rate doesn’t appear to be on the horizon even though the shekel-dollar rate is still in an uncomfortable position for the economy,” he said, referring to the strong shekel that is crimping exports. “It looks like inflationary expectations and actual inflation for the coming year will be above or about 2%.”

Yaniv Pagot, chief economist for the Ayalon Group, said he did not expect a return to undesirably high inflation despite the surprising jump in October. “The Bank of Israel will shelve its short-term plans for the time being to encourage economic activity by reducing the interest rate,” he said.

But Pagot noted that food prices were a problem, whose rise had not been stemmed despite a drop in world prices and the 2011 social protest, which he said “everyone has managed to forget.”

Fruit and vegetable prices went up nearly 6%.Credit: Jacob Solomon

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