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Israel Slides into Deflation as Domestic Growth Falls

Israel’s consumer prices fell in September compared to a year earlier, as the country’s economy also slowed, according to new data published by the Central Bureau of Statistics.

Prices fell 0.3% from the previous year, while they also fell 0.3% compared to the prior month when the inflation rate was zero.

Global commodity prices have slumped in recent months and Brent crude oil reached a four-year low on Wednesday, only to rebound later in the day.

It is the first time Israel’s economy has slid into deflation in seven years. The move has prompted increased speculation that the central bank may slash interest rates. The benchmark rate is already at a record low of 0.25% but some economists believe the rate could be trimmed even further in a bid to bring inflation back within the government’s target range of 1% – 3%.

As well as slashing interest rates, Israel’s central bank has purchased foreign currency in vast amounts, bringing reserves to a record $87.6bn (£54.9bn, €68.6bn) level.

According to forecasts from the Central Bureau of Statistics, Israeli gross domestic product is set to expand at 2% in 2014, its slowest rate since the height of the financial crisis.

The economy has been hurt by Israel’s war with Hamas militants in Gaza this summer, with tourism and manufacturing exports slowing down significantly.

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