(Updates with leading indicator in seventh paragraph.)
July 19 (Bloomberg) -- An Israeli Facebook boycott to protest the rising cost of cottage cheese has inspired further consumer actions against high prices of items ranging from diapers to housing and may help bring down the inflation rate.
More than 100,000 Israelis joined a Facebook group last month calling for a boycott of the dairy product whose price surged after government price supervision was lifted. The outcry prompted dairy companies, including Strauss Group Ltd., to lower the cost and the government to set up a committee to examine rising food prices. Another Facebook group is now targeting other consumer products while demonstrators in several cities are rallying against housing costs.
“The wave of protests against high food prices has gathered momentum,” Victor Bahar, deputy manager of Bank Hapoalim Ltd.’s economics department in Tel Aviv, said by telephone. “It has managed to bring down the prices of certain dairy products and is also likely to hold down price increases in the future.”
Economists’ 12-month inflation expectations declined to 2.9 percent from 3 percent a month ago, the Bank of Israel reported yesterday, the first time this year that they have dropped below the upper limit of the government’s 1 percent to 3 percent target range. Consumer prices, which rose 4.2 percent last month, have surged as the economy recovers from the global recession faster than most advanced countries, with inflation exceeding the target range every month this year.
Investors are betting that the average yearly inflation rate will decline to 2.8 percent in the next two years, according to Bloomberg data. The breakeven rate to 2019, which reflects investors’ expectations for annual inflation for the next 8 years, is 2.6 percent.
The expected slowing in inflation also follows 10 interest- rate increases by Bank of Israel Governor Stanley Fischer that raised the benchmark rate to 3.25 percent from 0.5 percent in 2009. Growth slowed to 4.6 percent in the first quarter from 7.7 percent in the previous three months.
Israel’s index of leading economic indicators rose 0.2 percent in June, the Bank of Israel reported today.
“The index points to continued economic expansion, but at a more moderate rate in the second quarter, compared to previous quarters,” the central bank said in the statement.
Alon Holdings Blue Square Ltd. and Shufersal Ltd., operators of the two largest supermarket chains in the country, have been cutting some prices in reaction to the protests, Haaretz reported on July 11.
A Facebook group called “Buy Less - Bring Down Prices” with 5,873 members opened following the cottage-cheese protests. It is targeting diapers, baby formula, breakfast cereals and olive oil, Gad Haran, one of the founders, said in a telephone interview yesterday.
Demonstrators set up tent camps in central Tel Aviv, Jerusalem and Beersheva this past weekend to protest what they say is unaffordable housing. Home purchase prices have increased 36 percent in the past two years.
Prime Minister Benjamin Netanyahu said yesterday the government is working to amend laws to enable the construction of “many more” apartments.
“Housing is a bit different. You can’t cut prices by decision,” Bahar said. “However, there is a feeling of a turnaround.”
While prices of consumer products may be moderating, electricity prices are likely to rise due to problems with the supply of natural gas from Egypt, said Bahar, who expects an increase of between 10 percent to 18 percent in the cost of electricity.
Fischer will probably hold the benchmark interest rate at the end of the month, according to 13 of the 15 economists surveyed by Bloomberg at the end of June and beginning of July. The two-year interest rate swap, the cost to receive floating payments or a measure of the average short-term rates in the next two years, declined to 3.86 percent from 4 percent the day after the last interest rate increase decision on May 23, meaning traders are boosting their bets on lower rates.
The TA-25 benchmark stock index has declined by about 6 percent since the beginning of the year, led by Discount Investment Corp., a holding company with interests in telecommunications, supermarkets and manufacturing.
--With assistance from Zoya Shilova in Moscow. Editors: Louis Meixler, Jennifer Freedman, Karl Maier.
To contact the reporter on this story: Alisa Odenheimer in Jerusalem at firstname.lastname@example.org.
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