Israeli airfare chaos jolts inflation, wrongfoots economists

Huge swings in the cost of Israeli airfares have left economists struggling to get a handle on inflation in wartime. A new methodology used by Israel’s statistics bureau to measure the prices of airplane tickets has caused so much confusion that almost all forecasters failed to predict the direction of inflation in the past two months. A single analyst in a Bloomberg survey of 18 correctly said annual price growth wouldn’t accelerate in May, when the cost of air travel plunged following a surge a month earlier. Though airfares account for just 1.6% of the consumer-price index, they are part of a larger transportation and communication category that makes up nearly a fifth of the basket, meaning big changes can heavily tilt monthly readings up or down. “The transportation section has had great fluctuations in recent months,” says Nira Shamir, chief economist at Israel Discount Bank. “It is, in fact, becoming unpredictable.” At stake is the ability of banks and traders to make investment decisions such as whether to favor instruments linked to consumer prices or look for other ways to hedge their exposure. The recent surprise readings also make it harder to map out the path of monetary policy after the central bank shifted to a pause following an interest-rate cut to start the year. <br/>