June Consumer Prices Up 0.3%, but Year-to-date Inflation Still Running Low

Fischer expected to keep August interest rates unchanged at 1.5%

Inflation in June was 0.3%, bringing the rise in consumer prices since the beginning of 2010 to 0.7%, in line with analysts' expectations.

Given the low six-month figure, analysts and government officials expect Bank of Israel Governor Stanley Fischer to leave interest rates unchanged for August, at 1.5%, both to encourage employment and economic growth, and so as not to increase the gap between Israeli and U.S. interest rates.

The Central Bureau of Statistics released the June consumer price index figures yesterday. They showed big price increases for clothing and shoes, of 11.2%, and fresh fruit, 7.1%, plus smaller increases for communications services (0.8% ), housing (0.6% ) and health care (0.5% ).

The price of fresh vegetables dropped 5.3% last month and transportation prices fell 1.1%.

Inflation was 2.4% over the past 12 months, which is near the middle of the 1%-3% target set by the Bank of Israel and the government. But for the March to June period, inflation ran to only 1.4% on an annual basis. That shows inflation has now cooled down, after running at an annual rate of over 3% just a few months ago. Food prices fell 0.1% for the month, while fruit and vegetable prices combined rose 0.1%. A few specific produce prices swung wildly, with plum prices rising 42% and avocados costing 62% more. Squash prices fell 32%, peppers were 28% cheaper and melon prices fell 21%.

In addition to the 0.6% rise in housing prices, household maintenance costs rose 0.1% - but prices of furniture and household goods fell 0.4% in June. Though education, culture and entertainment costs were 0.3% lower in June, the price of books jumped 14.3%. Glasses and medical equipment were also up 7.3%.