April CPI Shocks With 1.5% Jump

The April consumer price index rose far more than forecast, just as the March CPI did.

The April consumer price index rose far more than forecast, just as the March CPI did. April inflation was 1.5%, the highest rate for the month since 2002, when it also rose 1.5%, according to figures released yesterday evening by the Central Bureau of Statistics. In light of the big inflation spurt, it seems Bank of Israel Governor Stanley Fischer will have no choice but to raise June interest rates by 0.25% or even 0.5%, from the current level of 3.25%.

The April CPI is a sign of inflation figures that are far above the forecasts by Fischer and the central bank. Over the past 12 months inflation has surged well beyond the Bank of Israel and cabinet's target range of 1% to 3%, and has totaled 4.7% over the past year.

As high inflation is forecast for both May and June, it is already clear that Fischer will once again miss his annual target, as he has done for the past two years. Inflation is 1.6% so far this year, but for the first three months the annual rate was a whopping 4.8%.

Most CPI categories showed significantly higher prices in April, with the biggest coming in clothing and shoes, which became 6.7% more expensive. Food, including fruits and vegetables, was up 2.3%; transportation and communications cost 2% more; education, culture and entertainment cost 1.5% more; and housing was up 1.1%. Seven out of the 10 major subcategories were significantly higher.

Only the subcategories of furniture and household furnishings, as well as health and miscellaneous, were down, though only slightly.

The exceptionally high CPI left forecasters far behind, both in the government ministries and private sector, with most forecasts having been 0.9% or 1%. April inflation is traditionally high due to the large purchases for the Passover holiday, and the transition from winter to spring. Nevertheless, the April CPI was well beyond that of most.

Other significant increases came in fresh fruits, up 11%, and among a number of vegetables such as tomatoes, which soared 94%. Clothing was up 7.7% and vacations and recreation were up 10.6%. And of course the price of rice was up 16.3%, while bread increased 2.6%, and dairy products 1.6%. Lemons were up 48.3% and bananas 31.2%. Car rental prices in Israel jumped 21.1%.

In addition, the price of fuel and oil rose 1.6%, electricity 1.2% - though some of the inflation in these categories was offset by the dollar's drop in world currency markets.

The global rise in oil and food prices are the main factors for the recent months' high inflation. Continued increases in world oil prices threaten to keep inflation cruising at a high pace, and make it extremely unlikely that the government will hit its 2008 target.

The Manufacturers Association called on Fischer "to continue his policy of supporting growth and not to raise interest rates at the end of the month." The main cause of inflation in Israel is external, so raising rates will have no effect.