Bloomberg News

Israel Inflation Drops to Lowest in Over a Year as Growth Eases

February 15, 2012

Feb. 15 (Bloomberg) -- Israeli inflation eased in January to its slowest pace in more than a year as growth weakened and protests against the cost of living helped keep prices in check.

Consumer prices rose an annual 2 percent compared with a 2.2 percent gain in December, the Central Bureau of Statistics said today. The median estimate in a Bloomberg survey of 12 economists was 1.9 percent. Prices were unchanged in the month.

“During the past six months, inflation has been zero,” Alex Zabezhinsky, chief economist at DS Securities & Investments in Tel Aviv, said in a telephone interview before the announcement. “The social protests had a significant effect. In addition, the slowdown in the economy brought about a decline in consumer demand and this affects prices.”

Growth is expected to slow to “a little less” than 3 percent this year, the International Monetary Fund said Feb. 13, lowering its forecast from 3.6 percent in September. In 2011, the economy expanded 4.8 percent. Protests against the high cost of living that spread through the country last year have helped moderate several components of the consumer-price index, including food and housing, the Bank of Israel said this week.

The central bank lowered its benchmark interest rate by a quarter-point last month to 2.5 percent, the third cut in five months, saying that the European debt crisis remains a threat to growth.

“Inflation is on track to fall toward and even beyond the mid-point of the inflation target range -- with commodity prices, domestic demand and the housing market all softening,” the IMF said in a Feb. 13 report on the Israeli economy.

Israel’s Purchasing Managers Index fell to its lowest in almost three years in January, indicating a “sharp contraction” in industrial activity.

The government’s target is 1 percent to 3 percent. Economists’ 12-month inflation expectations were unchanged at 2.3 percent for a second month, the central bank said Jan. 17.

--Editors: Ben Holland, 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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