The PMA Cuts its Forecasts for Inflation Rates in 2015

The PMA has released the fourteenth issue of the Inflation Report in Palestine. The Report deals with consumer prices developments during the first quarter of 2015, in addition to the expected inflation rate in the following quarters of 2015 and 2016. The inflation rate has dropped to 0.6% in the first quarter, compared with 1.3% in the previous quarter, and 2.2% in the corresponding quarter 2014. This slowdown consisted with the dwindling inflation rates in most countries during the same period, as world commodity prices, particularly for food and oil, continued to diminish since September 2014.

The Report pointed out that the inflation rate in Palestine followed contrasting paths during the first quarter 2015, with prices declining in the West Bank by about 0.5%, and rising by about 1.2% (on annual basis) in Gaza Strip. In the West Bank, the decline in prices of food and soft drinks has contributed to lowering the inflation rate in first quarter by 1.1 percentage point. Also, prices of transport and housing have contributed to lowering the inflation rate by 0.3 percentage points for each. In Gaza Strip, the increase in prices of tobacco and transport have contributed to increasing the inflation rate by 0.7 and 0.6 percentage points, respectively.

The Report also clarifies that inflation in Palestine is mainly imported, and greatly influenced by world prices, particularly food and oil prices, whose decline led to a drop in local inflation rates.

In order to forecast price changes in Palestine, two factors are taken into consideration. The first is the cost of imports which reflect inflation and exchange rates in trading partners. The second is the world food price index, as food accounts for the highest weight in the CPI basket in Palestine. In this context, the Report expected another drop in the inflation rate in the coming quarter (2015Q2) to around 0.9%. Moreover, the Report expects lower annual inflation rates in 2015 quarters compared to inflation rates in 2014 quarters. Such expectations reflect a decline in food prices and a slowdown in cost of imports during 2015. As a result, overall inflation in 2015 is expected to fall to 1.0%, compared to 1.7% in 2014.