PMA Expects Continuing Surge in Inflation Rates to Persist till Mid-next Year

Following the inflation rate increase in Q3 of the current year in the aftermath of the aggression on Gaza

Ramallah,

The PMA published the Inflation Report (Volume 12) on Palestine which includes recent developments in consumer prices in Palestine for Q3 2013, in addition to inflation rate forecasts for Q4 of the current year and for the next year on quarterly basis. The report indicates an increase in inflation rate in Palestine for Q3 of the current year by around 2.3 percent on an annual basis, reflecting a rise to higher levels than those achieved in Q2 2014 equal to 1.3 percent and those achieved in the corresponding quarter of 2013 equal to 1.4 percent. The rise comes in the aftermath of the Israeli attack on the Gaza Strip which led to an increase in prices in the Strip by around 5.4 percent.

The report points to the rise in beverages and tobacco prices and medical services, by 9 percent each, as the main reason behind the rise in inflation rate in Q3 2014. In addition, less drastic rises in the prices of restaurants and cafes services, housing services and food and soft drinks played a role in spurring the inflation rate hike for that period.

As for causes of inflation, the report reveals that inflation in Palestine is largely imported and shows high sensitivity to world prices, particularly food and fuel. The approach followed in the report for inflation analysis and forecasting purposes depends on two variables: cost of imports, which reflects the inflation and exchange rates of Palestine’s main trading partners, particularly Israel, and world food prices, as food has the highest weight in the Palestinian consumer basket. 

As for inflation forecasts, the report shows that during the fourth quarter of 2014 the inflation rate is expected to rise by

around 2.4 percent as compared with the current quarter. Consequently, inflation rate for 2014 is estimated to average around 2.0 percent. The report also shows that inflation rates in Palestine will continue to rise to 2.2 percent, on an annual basis, for both Q1 and Q2 of 2015, in light of the expected rise in cost of imports, to start decline in the second half of the year.