May CPI Hits High End of Forecasts: 0.7%

The May consumer price index (CPI) rose 0.7%. This big increase came in at the top of the range of forecasts of 0.5%-0.7%, and was the highest inflation rate for May in the last seven years.

In response to the high May CPI, the governor of the Bank of Israel, Stanley Fischer, is expected to raise interest rates for the second month in a row at the end of June, most likely by 0.25% to 3.75%.

Annualized inflation for 2008 is now running at 5%, and the index has risen 2.2% since the beginning of the year. Over the past 12 months it is up 5.4% - all while the cabinet and central bank's 2008 inflation target is still 1% to 3% for the year.

Prices rose in almost all categories, with the major increases coming for fresh fruits, 16.7%; fuel, 4.9%; and meat, poultry and fish, 3.2%. At the same time, fresh vegetable prices fell 13.4% and Internet services were down 9.4%.

As usual, the poor were hit the hardest by last month's inflation, with prices for the wealthiest 20% of the population rising 0.6% while those for the bottom fifth rose 0.7%. The reason is the larger proportion of food in the consumer basket for the poor compared with the rich, and last month food prices were up 1.9%.

Rice skyrocketed 40.9%, and frozen meat 19.2%. Over the past 12 months food prices have climbed 12.5%. Fruit and vegetable prices offset each other, and together they were unchanged for the month.

As for so-called core inflation, the CPI without energy costs over the past 12 months is up 4.6%, and without housing, 6.2%.

Housing costs were up only 0.1%, though household maintenance rose 0.6%. Clothing and shoes rose 3.1%.

Industrialists and businessmen called on Fischer not to raise rates as the shekel is still too strong.