Bank of Israel data released today show a 0.7 percent expectation for inflation, up from 0.3 percent estimated at the beginning of 2009, according to Globes. The updated figures were compiled by the central bank before the release on Tuesday of the Consumer Price Index (CPI) for March which surprised analysts by showing 0.5 percent rise compared with estimates of zero to 0.2 percent.
Market sources said today that the Bank of Israel's figure was no longer relevant, since it did not incorporate the market's response to the March CPI numbers. However, the market's surprise is well reflected in the behavior of government bonds today. Yields on long CPI-linked Shahar bonds fell almost 1 percent, indicating a sharp rise in demand which in turn indicates expectations among investors that the CPI will rise. By contrast, yields on unlinked Galil bonds rose.