PMA Expects Inflation Rate to Decline in Palestine during 2013

The Research and Monetary Policy Department in PMA issued the seventh issue of the Inflation Report. This Report focuses on the developments of the consumer prices in Palestine during the second quarter of 2013 and the forecasts of the inflation rate for the same year. According to the report, inflation rate in Palestine reached 1.8% during the second quarter of 2013. In comparison with the previous periods; it is noticed that this rate is a little bit higher than the inflation rate in the first quarter of the current year which was 1.7%, but at the same time it's much less than the ratio that was in the same quarter of last year which was 2.6%.

Regarding the causes of the inflation; the report points out that the inflation in Palestine is imported and shows a heavily dependence on the global prices in particular on the prices of food and fuel. The inflation analysis and forecasting methodology depends on two factors; costs of imports, which take into consideration inflation and exchange rates in Palestine’s trading partners (Israel in particular), and the World Food Price Index, since the food occupies the highest weight in the Palestinian consumer basket.

The report shows that price levels in Palestine is higher than world prices, for instance; the price of one liter of gasoline is NIS 7 in Palestine during the second quarter of 2013, whereas the global price is NIS 3.4. The differences in price levels are not limited only to fuel but it also includes basic commodities such as wheat, rice, and sugar. During the second quarter of 2013, wheat and rice prices in Palestine were more than double of the world price, whereas the sugar price was around 1.7 times the global price.

Regarding future forecasts; it's expected that the consumer price in Palestine will increase by1.8% during 2013, which considered lower than the inflation rate in 2012 which was 2.8%. This expected slowdown in the inflation rate is consistent with expected decline in aggregate demand in Palestine for 2013, where demand will increase by nearly 5.3% during 2013 compared with 12 percent during 2012.