(Bloomberg) -- Israel’s consumer prices plunged more than expected in the steepest fall since 2004, despite the central bank’s spate of foreign-currency purchases designed to weaken the shekel and boost inflation.
May consumer prices dropped 1.6% from a year earlier and 0.3% since April, according to data from the Central Bureau of Statistics, with particularly sharp monthly reductions in the cost of fresh vegetables and food. The declines were deeper than any forecast in Bloomberg surveys of economists, whose median estimates were for a 1.2% annual drop and an increase of 0.1% on a monthly basis.
The extent of the disinflation is likely to worry policy makers, who want to see prices back in the central bank’s 1% to 3% target range. The shekel extended losses against the dollar after the data release on Monday.
With the economy succumbing to a recession amid the coronavirus pandemic, the Bank of Israel has fretted that the strengthening currency, which appreciated to around pre-crisis levels this month, could hamper the recovery of exports and a pickup of prices. Annual inflation has now been below zero for two months straight.
To slow the shekel’s gains, officials more than tripled foreign-currency purchases to $2.6 billion in May. The shekel lost 0.7% against the dollar last month.
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