To seriously answer the first question we should examine the prices of fuel in other countries. The gasoline price in the U.S. is low and is at an average of $3.72 per gallon, i.e. $0.98 per liter. On the other hand, in the EU the average price is € 1.537 per liter i.e. $2 per liter.  So the price of gas in Israel is nearly the same as in EU.

Thus, gasoline prices in Israel are high but are at least in the ballpark of the gasoline price in Europe.

Now let’s move to answer the second question.

The chart below shows the development of gasoline price in Israel in the past three years from 2009 to 2012.

There are three main components that affect the price of gasoline: crude oil prices, taxes (excise taxes and VAT), and changes in USD/NIS exchange rate.

Between January 2009 and March 2012 the price of 95-Octane Petrol rose from 4.75 NIS per liter to 7.74 NIS per liter i.e. a 62.9% growth. Let’s breakdown this growth to the above-mentioned components:

During said period, crude oil price WTI rose by 131%; the USD/NIS declined by 4.41%; the VAT rose from 15.5% to 16% – a 0.5 percent point gain; and Excise Taxes increased by 19.1%.

The chart below presents the development of the excise taxes on gasoline price in the past three years.

This means the component most responsible to the rise in gasoline prices besides crude oil prices, is the gains in excise taxes.

This figure above also means that the recent raise in gas price could have been offset by reducing some the excise taxes to their level from 2009.

The chart clearly shows that the Ministry of Finance raised these taxes in the past three years, usually justifying this raise by voicing its concern to the environment by reducing car pollution.

In order to protect the environment people will still need an alternative and until there will be a substantial and viable public transportation among cities inter-cities running all days of the week, it will be hard to justify raising taxes on fuel on behalf of the environment.

For further reading:

• Crude Oil Prices – Weekly Outlook March 5-9
• Israeli Inflation Remained Flat in January 2012

The last time Bank of Israel has reduced its basic interest rate was a month back in January 2012 when it reduced the rate by 0.25 percent points. During 2011, Bank of Israel raised the Israeli interest rate four times mainly during the half of the year and cut the interest rate three times during the last few months.

This change in direction shows that the Bank of Israel is more concern that the Israeli economy will pull into an economic slowdown especially considering the slowdown in Euro Zone’s economy and the ongoing debt crisis than reaching the inflation target of Bank of Israel (3%).

Besides as of January 2012, Israeli inflation rose by only 2.0% in the past twelve months which is well in the Bank’s annual inflation target rate of 3%. There are expectations that the CPI will continue to be in the same range of less than 3% during 2012.

The low inflation rate on the one hand the potential economic slowdown on the other increases the chances of increases of additional interest rate reductions in the months to come.

For further reading:

• Israeli Inflation Remained Flat in January 2012
• The Israeli Economy Expanded by 3.6% during H2 of 2011
• The Israeli Economy Expanded by 4.8% in 2011

The Israeli Gross Domestic Product has expanded, after controlling for seasonality and at fixed prices by 3.6% in annual terms during the second part of 2011. This is a smaller growth rate than the one recorded during the second part of 2010, back when the Israeli GDP grew by 5.8%.

During the fourth quarter of 2011 the Israeli GDP grew by 3.2% compared with a growth rate of 3.8% during the Q32011 and by 3.9% during Q2 2011. As a comparison, the U.S. GDP expanded by only 2.8% during the fourth quarter of 2011, while the Euro Zone GDP declined by 0.3%.

This mean the while the Israeli economy isn’t expanding at the same high rate it once did in the previous quarters, at least it does a bit better than the leading economies.

The chart below shows the annual growth rate of Israel’s GDP during 2010 and 2011 and the Israeli basic interest rate.

The chart is compared with the interest rate as it might partially explain the economic slowdown in Israel during 2011. As the rate rose the economic activity may have slowed down. Of course there are additional factors such as the economic slowdown in Europe that may have adversely affected the Israeli economy.

One of the reasons for the higher growth in Israel compared with the growth rate of other leading countries’ GDP is due to the high population growth rate which is estimated at 1.9% in 2011. As a comparison, in the U.S. the population’s growth rate was nearly 1% in 2011.

There are still growing concerns of an economic slowdown in Israel during 2012: according to the current expectations of Bank of Israel the GDP will expand by only 2.8% in 2012.

This means that if the Israeli economy will continue to show signs of cool down Bank of Israel might intervene and further lower the interest rate during 2012.

In the recent Central Bureau of Statistics report regarding consumer prices changes for January 2012, the Israeli inflation (CPI) remained flat compared with December’s CPI (see chart below). The CPI sans energy and the index sans housing decreased each by 0.1% during January, while the CPI sans fruit and vegetables also remained flat.

The main sectors that pushed the inflation rate up during January were: fresh fruit (1.5% increases), transportation (0.6% increases), food (0.5% gain). On the other hand, the following sectors’ prices decreased during last month and curbed gains in the general CPI: footwear and clothing (7.7% drop) and fresh vegetables (6.2% decreases).  During recent months some of the price gains were imported such as the increases in food prices and energy prices.

During the last twelve months (January 2011to January 2011) the Israeli inflation rose by 2.0%; the CPI without fruit and vegetables increased by 2.3%; the CPI without energy rose by 1.6%; and the CPI without housing rose by 0.9%.

The Bank of Israel reduced the February basic interest rate by 0.25 percent points from 2.75% to 2.5% – the lowest interest rate since March 2011. This is another attempt by the Bank to keep the economy growing and closing some of the gap between the interest rates in Europe & U.S. and Israel.

Bank of Israel is likely to continue examining the Israeli inflation, and even more importantly the economic situation in Europe which could adversely affect Israel’s progress. This means there is a good chance in the near future we will see additional rate reductions by BOI.

For further reading:

• BOI Cut the Rate to 2.5% – Hold on There will be More Cuts
• Israeli Inflation Slipped by 0.1% in November 2011

The last time Bank of Israel has reduced its basic interest rate was back in November 2011 when it reduced the rate by 0.25 percent points. During 2011, Bank of Israel raised the Israeli interest rate four times mainly during the first months of the year and reduced the interest rate twice during the last few months of the month.

This change in direction shows that the Bank of Israel is more concern of the Israeli economy pulling into a recession that reaching the actual inflation target of Bank of Israel (3%).

As of December 2011, Israeli inflation remained unchanged at 2.2%, which is well in the Bank’s annual inflation target rate of 3%. There are expectations that the CPI will continue to be a very similar rate in 2012 as it was during 2011.

This means there will be more rate reduction in the months to come. The future rate reduction will probably be due to BOI’s concerns revolving the future ramification of the economic slowdown in Europe on the Israeli economy.

During January the U.S dollar depreciated against the NIS: In January the US dollar declined by 2.3% against the NIS. On the other hand the NIS has slightly depreciated against the Euro by 0.3% during the first month of 2012.

For further reading:

• The Israeli Economy Expanded by 4.8% in 2011
• Bank of Israel Kept the January Interest Rate at 2.75%
• Israeli Inflation Slipped by 0.1% in November 2011

The last time Bank of Israel has reduced its basic interest rate was back in November 2011 when it cut the rate by 0.25 percent points. During 2011, Bank of Israel raised the Israeli interest rate four times mainly during the first months of the year and cut the rate back twice.

This change in direction shows that the Bank of Israel is more concern of the Israeli economy pulling into a recession that reaching the actual inflation target of Bank of Israel (3%).

As of November 2011, during the last 12 months the Israeli inflation inclined by 2.6%, which is well in the Bank’s annual inflation target rate of 3%. There are expectations that the CPI will continue to fall in the next twelve months to 2.53%.

The chart below shows the progress of the Israeli inflation and the Israeli basic interest rate in the past couple of years.

During December the U.S dollar appreciated against the NIS: In December the US dollar slightly inclined by 0.7% against the NIS. On the other hand the NIS has appreciated against the Euro by 2.3% during the last month of 2011. During 2011 the NIS has depreciated against the US dollar by 7.6% and by 4.2% against the Euro. If the Bank of Israel will continue to cut the interest rate in the months to come this may further depreciate the Israeli currency against the leading rates.

Lior Cohen, M.A. economist and blogger at IBR and Trading NRG.  

For further reading:

• CPI rose by 0.5% during August 2011
• Flash report: Second quarter 2011 GDP of Israel grew by 3.3%
• CPI declined by 0.3% during July 2011

This estimate is based of the performance of the Israeli economy during the first three quarters of 2011: the Israeli Gross Domestic Product has expanded by 4.8% in annual terms. This is a similar growth rate to 2010, back when the Israeli GDP grew by 4.8%; in 2009 the GDP of Israel grew by 0.8%.

The chart below shows the annual growth rate of Israel’s GDP in the past years.

One of the reasons for the high growth compared with the growth rate of other leading countries’ GDP such as U.S.’s GDP growth rate of 1.8%,  is due to the high population growth rate of 1.9% in 2011. As a comparison, in the U.S. the population’s growth rate was nearly 1% in 2011.

In 2011, Isreal’s GDP expanded by 3.5% during the third quarter (Q-o-Q), 3.7% in the second quarter and 4.8% in the first quarter. This means that the economic growth of the Israeli economy has diminished during the year and may end up even lower than the current expectations.

The chart below shows Israel’s GDP in recent years (in million of NIS in 2005 figures).

The private expenditure rose by 4.0% (Y-o-Y) during 2011, after it had increased by 5.3% during 2010.

Despite the high growth rate in Israeli there are still growing concerns of an economic slowdown in Israel in 2012. According to a recent publication by Bank of Israel the Israeli economy will grow by only 2.8% in 2012. There are expectations of contractions in fixed assets investments, imports, exports and private consumption in 2012 compared with 2011 growth rate. If this grim estimate is prompted by negative forecasts for the European Union, one of the leading economies that Israel has strong commercial ties.

Lior Cohen, M.A. economist and blogger at IBR and Trading NRG.  

 Want a more detailed analysis on Inflation in Israel? IBR can do it for you…read here for more

In the recent Central Bureau of Statistics report regarding consumer prices changes for November, the Israeli inflation (CPI) declined by 0.1% compared with October’s CPI (see chart below). The CPI sans energy and the index sans fruit and vegetables also decreased each by 0.2% during November.

The main sectors that contributed to the decrease in inflation rate during November were: fresh fruit (1.5% decreases), housing services owned by tenants (1.0% decreases), transportation (1% drop). On the other hand, the following sectors inclined during last month and curbed the decrease in the general CPI: fresh vegetables (8.6% increase), and footwear and clothing (3.0% increases).  During recent months some of the price drops were imported such as the drop in food prices and energy prices.

During the last twelve months (November 2010 to November 2011) the Israeli inflation rose by 2.6%; the CPI without fruit and vegetables increased by 3.1%; the CPI without energy inclined by 2.0%; and the CPI without housing rose by 1.7%.

The Bank of Israel cut the December basic interest rate by 0.25 percent points from 3% to 2.75% – the lowest interest rate since March 2011. This is another attempt by the Bank to keep the economy running and closing some of the gap between the interest rates in Europe & U.S. and Israel.

Bank of Israel is likely to continue examining the Israeli inflation, but may choose to be prudent and keep the interest rate unchanged in the last interest rate decision of 2011 by the end of December despite the slowdown in the inflationary pressures.

For further reading:

• Israeli Inflation Inclined by 0.1% in October 2011
• U.S CPI Remained Unchanged in November – December Report

About the Author: Lior Cohen, M.A. in economics from the University of Tel Aviv, an economist and an independent blogger at several financial blogs including IBR and Trading NRG.  

In the recent Central Bureau of Statistics report regarding consumer prices changes for October, the Israeli inflation (CPI) rose by 0.1% compared with September’s CPI (see chart below). The CPI sans energy and the index sans fruit and vegetables also rose each by 0.1% during October.

The main sectors that contributed to the rising inflation rate during October were: footwear and clothing (5.8% increases), health expenditure (2.6% increases) and food (0.3% increases). On the other hand, the following sectors declined during last month and curbed the rise in the general CPI: fresh fruit (2.8% decrease), and housing (0.4% decrease).  During recent months some of the price hikes were imported such as the hike in food prices and energy prices.

During the last twelve months (October 2010 to October 2011) the Israeli inflation rose by 2.7%; the CPI without fruit and vegetables increased by 3.6%; the CPI without energy inclined by 2.2%; and the CPI without housing rose by 1.7%.

The Bank of Israel‘s kept the November basic interest rate at 3% after the Bank reduced the rate by 0.25 percent point in the September rate decision.

Bank of Israel is likely to continue examining the Israeli inflation, but isn’t likely to change its interest rate in the upcoming interest rate decision at the end of November.

 Lior Cohen, M.A. economist and blogger at IBR and Trading NRG.  

 For further reading:

• Israeli Inflation Slipped by 0.2% in September 2011
•  CPI rose by 0.5% during August 2011
• Bank of Israel left the September interest rate unchanged at 3.25%

This flash estimate is based of the performance of the Israeli economy during the first three quarters of 2011: the Israeli Gross Domestic Product is estimated to grow by 4.9% in annual terms. This is a very similar growth rate to 2010, back when the Israeli GDP grew by 4.8%; in 2009 the GDP of Israel grew by 0.8%.

The private expenditure is projected to incline by 4.8% (Y-o-Y) during 2011, after it had increased by 5.8% during 2010.

Despite the high robust growth rate in Israeli GDP compared with the GDP growth rates in the U.S and Europe during 2011, there are still growing concerns of an economic slowdown in Israel in the rest of 2011 and 2012. The Israeli GDP growth rate has declined in recent quarters: during the second quarter of 2011 the Israeli GDP grew by only 3.7% compared with a growth rate of 5.1% in the first quarters of 2011. There are also concerns that the current debt crisis in Europe may eventually start to affect the Israeli economy. The Ministry of Finance released today, November 15^th its analysis of the economic situation of Israel during September 2011: the analysis presented a slowdown in the economic activity of Israel including decreases in manufacturing production index. During January to October there was a shortage of 2.6 billion NIS ($712 million) in tax collections compared with the tax collecting targets.

Lior Cohen, M.A. economist and blogger at IBR and Trading NRG.  

Want a more detailed analysis on Inflation in Israel? IBR can do it for you…read here for more

•  Flash report: Second quarter 2011 GDP of Israel grew by 3.3%
•  First quarter 2011 GDP of Israel rose by 4.7%
• Fourth quarter 2010 GDP of Israel shows a steady rise – review