This evening (18:30) the Central Bureau of Statistics published the Consumer Price Index for June. The index recorded an increase of 0.3% compared to economists' expectations for an increase of 0.2%, after an increase of 0.1% in May.
Price increases were particularly recorded in the following categories: clothing and footwear (by 10.0%) and housing (by 0.3%).
Price decreases were particularly recorded in the fresh fruit (by 8.5%), fresh vegetables (by 1.4%), and food (by 0.3%) categories.
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It should also be noted that the index excluding housing increased by 0.2%, the index excluding energy and the index excluding vegetables and fruits increased by 0.3%. Since the beginning of the year, the general index has remained unchanged, the index excluding housing decreased by 0.5%, and the index excluding vegetables and fruits increased by 0.1%.
In the last 12 months (June 2014 compared to June 2013), the index increased by 0.5%, the index excluding vegetables and fruits by 0.6%, and the index excluding housing decreased by 0.2%.
""The Bank of Israel fell asleep on guard""
Ilan Artzi, Chief Investment Officer at the Hellman Aldubi Investment House, notes that "the macro picture in Israel has not looked good in recent weeks, even before the escalation in the south began. Most economic data indicates a deterioration in economic activity in the economy, including the latest data published regarding foreign trade, the consumer confidence index and the purchasing managers' index. All of these, combined with the weak dollar and the recent moderation in energy prices, are expected to continue to lead to a moderate and even negative inflation environment in the coming months. The impact of this on the interest rate is clear, and the chances of a further reduction, in our opinion, have increased.
On the other hand, the Bank of Israel has stated several times that it is monitoring the actions of other central banks around the world, and the US central bank recently announced an expected end to the quantitative easing program in October, which has the opposite meaning of lowering the interest rate.".
Yossi Freiman, CEO of Frico Risk Management: "Given the higher-than-expected index, the Bank of Israel may continue to wait before taking expansionary steps by reducing the interest rate. The bank and policymakers will be required to examine whether the high index is a one-off event or whether it is a single event that indicates what is expected, and therefore the Bank of Israel will wait for additional data before changing its policy. The high index is a positive indicator of a revival in demand after a prolonged period of decline in investment and a change in caution on the part of the public. At this stage, it is appropriate to examine whether this is a change in trend and a recovery in economic activity in the economy.".
Erez Cohen, former chairman of the Israel Real Estate Appraisers' Bureau: "The fact that after all the steps and declarations taken by the government, including the announcement of the abolition of VAT, housing prices continued to soar in the interim period, and even in one month an increase of 0.5 percent was recorded, indicates the government's complete loss of control over housing prices. Those responsible for the Israeli economy, led by the Minister of Finance, would do well to finally implement my proposal to create a differential interest rate in the economy, one generally low and a second, higher, for mortgage borrowers. This is because with the very low interest rate that exists today, which may even fall even further, there will continue to be a great temptation to take out excessive mortgages, which will push real estate price levels upward, and in a limited and fairly frozen market, will put thousands of households in danger and will be clearly unsympathetic from the perspective of the banking system and the capital market.".
Shmuel Ben-Aryeh, Research Director at Pioneer Group: "The June index is usually positive and is affected every year by the seasonal increase in clothing and footwear prices. This time too, the index is not surprising and shows that the economy is stabilizing relatively, but this is not enough. Looking at the last 12 months, the index is well below the inflation target, that is, in clear deflation - the Bank of Israel has fallen asleep on guard. It must now continue to try to make money cheaper (through low interest rates) and carry out a comprehensive monetary expansion in order to encourage the public to go out and consume, thereby stimulating the local economy. All of this is consistent with the dismal state of the shekel-dollar exchange rate, which the current security situation is not helping either. Unfortunately, next month the index is also expected to be weak in light of the security situation, which makes it difficult to encourage consumption in the country.".
