• Tue. Oct 3rd, 2023

Israeli Inflation Turns out Higher than Forecast in February

Mar 16, 2023

On Wednesday, the Central Bureau of Statistics said that the annual inflation in Israel in the month of February had declined to 5.2% from 5.4% in January.

However, it had quickened at a faster rate that had been forecasted, which would add more pressure on the Bank of Israel to deliver yet another interest rate hike in the next month.

The inflation

There was a 0.5% in the consumer price index (CPI) in February, which is considered a measure of inflation tracking the household goods’ average cost.

This was higher than the 0.3% expectations of analysts and meant that annual inflation came down from 5.4% in January to 5.2% in February, while expectations had put it at 5%.

The cost of fresh fruit and vegetables recorded a 3.8% increase in February, a 0.9% increase was seen in culture and entertainment costs, while transportation and housing rose by 0.5% and 0.4%, respectively.

The statistics bureau revealed that the cost of communication and that of footwear and clothing had recorded declines of 0.9% and 3.3%, respectively.

There was a 4.4% increase in rents on contracts’ renewal, while a 7.5% increase was recorded in rents on new tenants’ contracts.

The central bank

Even though the inflation in February was the lowest figure recorded since October, it is still significantly higher than the target range of the government, which is between 1% and 3%.

This is despite the measures the Bank of Israel has implemented in order to bring down inflation. Over the last year, the central bank has been steadily delivering interest rate hikes.

Last April, the interest rate had stood at a record low of 0.1%, but it has been lifted to 4.25%, which is the highest it has been since 2008.

All of this has been done for the sole purpose of bringing down price growth. The last rate hike of 50 basis points was delivered in February.

Future movements

The monetary policy committee of the Bank of Israel will announce its decision about the next interest rate movement in its meeting on April 3rd.

In an interview on Tuesday, Amir Yaron, the Governor of the Bank of Israel, said that they were determining to bring down inflation to the bank’s target.

He said that if they had to continue delivering interest rate hikes to do so, then that is what they will do. He added that the investment and growth in the high-tech sector has allowed the economy to thrive.

Yaron said that it would take a bit more pain for them to be able to reduce inflation. He said that pain is involved because there are a lot of mortgages directly tied down to the interest rate.

According to economists, the central bank is likely to deliver another interest rate hike in April of 25 basis points, or 50 basis points.

This would depend on the rate hikes that would be delivered by other global central banks in the coming week. Inflation is also expected to continue hovering close to the 5% mark in the next few months.

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