Bloomberg News

Israeli Inflation Likely Slowed on Protests, Weaker Economy

November 15, 2011

Nov. 15 (Bloomberg) -- Israeli inflation likely slowed in October, remaining within the government’s target range for a second month, as consumer protests, declining commodity prices, and a weakening economy helped moderate costs.

Annual inflation eased to 2.8 percent from 2.9 percent in September, according to the median estimate of eight economists surveyed by Bloomberg. The consumer price index rose 0.2 percent from the previous month, according to the survey. The Jerusalem- based Central Bureau of Statistics is scheduled to release the data at 6:30 p.m. local time today.

“This is the very beginning of the weakening economy and I think it will be more pronounced going forward into the fourth quarter,” said Jonathan Katz, a Jerusalem-based economist for HSBC Holdings Plc. “Declining inflation will be supportive for further rate cuts.”

The Bank of Israel on Oct. 24 left its benchmark lending rate at 3 percent following a quarter-point cut the previous month, saying it has “room to respond” to events in the global and local economies. Analysts in an Oct. 28 Bloomberg survey were evenly split about the course the central bank will take at its Nov. 28 meeting, with five predicting a reduction to 2.75 percent and the other five expecting no change.

The central bank cut its forecast for economic growth this year and next on Sept. 22, citing increased uncertainty about the global economy and a decline in the rate of growth in world trade. The economy will expand 4.7 percent in 2011 and 3.2 percent in 2012, the central bank said, lowering its forecasts from 4.8 percent and 3.9 percent.

Inflation Expectations

Prime Minister Benjamin Netanyahu’s Cabinet approved a program on Oct. 9 that aims to ease the cost of living after rallies brought hundreds of thousands of protesters onto the streets.

The demonstrations and boycotts, which started in June over the cost of cottage cheese, prodded Tnuva Food Industries Agricultural Co-Op In Israel Ltd., which controls about 70 percent of the dairy market, to cut recommended selling prices by as much as 15 percent last month. Competitor Strauss Group Ltd. followed with reductions of 12 percent on some of its milk products.

Slowing inflation “has to do with lower food prices because of the social protest movement and lower commodity prices,” Katz said.

Economists’ 12-month inflation expectations declined to 2.2 percent from 2.4 percent a month earlier, the central bank reported Oct. 18, the lowest since February 2010. The government’s target range for inflation is 1 percent to 3 percent.

--Editors: Louis Meixler, Karl Maier.

To contact the reporter on this story: Alisa Odenheimer in Jerusalem at aodenheimer@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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