• The Consumer Price Index (CPI) rose by 3.4 percent in 2007, above the upper limit of the inflation target. 
  • The main forces affecting prices were the steep rise in world prices of inputs, the expansion of domestic demand, and the appreciation of the shekel during most of the year. 
  • In the first half of 2007 real inflation was below the lower limit of the inflation target, while the effect of the forces exerting downward pressure on prices and influenced by local-currency appreciation predominated. During this period the Bank of Israel reduced the interest rate five times, by a cumulative 1.5 percentage points, so that in the middle of the year it stood at 3.5 percent. 
  • Both real and expected inflation rose in the second half of the year, and the effect of the forces exerting upward pressure on prices resulting from both real economic activity and world prices of energy, goods, and food were predominant. In 2007:III the Bank of Israel raised the interest rate twice, to 4 percent, where it remained until the end of the year. 

Inflation and Monetary Policy - Full File