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Israeli inflation slows on price falls

ISRAELI inflation probably eased to its slowest pace in 14 months in January as prices for energy, vehicles, travel and apparel declined, according to a survey released yesterday.

The inflation rate fell to 3.3 percent from 3.8 percent in December, according to the median estimate of 10 economists surveyed by Bloomberg News.

"The main factor until now has been lower energy prices, but as the labor market starts to get worse we'll start seeing declines in the food and housing categories," said Yaniv Hevron, an economist at Psagot Investment House Ltd. "The Bank of Israel will probably lower the base rate between 0.5 to 0.75 percentage point this month."

Inflation has been easing from a peak of 5.5 percent in September and October, enabling the Bank of Israel to lower its benchmark lending rate by 3.25 percentage points over the past four months to a record low of 1 percent.

The inflation rate will probably fall below the government's target range of 1 percent to 3 percent this year as economic growth slows and global energy prices fall, the central bank said on January 26, citing its survey of forecasters. It will return to the range in 2010, according to the poll.

The central bank probably will lower the rate a further half point at its next policy meeting next Monday, according to eight economists surveyed by Bloomberg. Two of the eight see the rate dropping to 0.25 percent.


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