Bank of Israel: inflation expectations for the coming year down to 2%

The Bank of Israel informed last week that inflation expectations for the coming year, January - December 2006, had averaged 2%, compared with 2.1% in November, 2.4% in October, and 2.5% in September.
 
Inflation expectations for the following twelve months, January - December 2007, are also sliding. They averaged 2.3% in the past 30 days, compared with 2.5% in November and October, and 2.6% in September.
 
Sources in Jerusalem argue however that despite the positive inflation expectations, the Governor of the Bank of Israel Prof. Stanley Fischer is likely to leave the interest rate for January 2006 unchanged. Bank of Israel economists expect the Consumer Price Index (CPI) to drop slightly by up to a cumulative 0.5%, in the period November 2005-February 2006.
 
Contrary to assumptions made Bank of Israel economists, some economic sources in jewrusalem predict that Fischer has no other option but to continue raising the interest rate because inflation in the period January-November 2005, totaled 2.6%, higher than the 2% midpoint of the government’s 1-3% target range.
 
In addition, many economists argue that interest rate should be increased due to the uncertainty prevailing in the markets because of the political situation, the elections, and failure by the government to pass the 2006 budget.