Hyperinflation in Zion again? Hell NO!!!!

A well-known photo shows children playing with worthless Germany money. At inflation's peak, 1 dollar traded at 4.2 trillion Deutsche Marks..

On the 28th January 1986 , my seventh day as an new immigrant and aleh chadash in Zion, I picked up the Jerusalem Post and what first caught my eye was a small boxed article all of 3 inches that read . "Bank of Israel increases Bank Rate by 6.2%" . Whow ....I read the article out load and inquired of the 20 Maagan Micha'el Poalei Tzion ,in the Plasson Factory's Take 5 Recreation Tea Break Room , "Annually,? (I inquired, a bit incredulous, seemed high) ". Hell No", they answered the recent MA in Economics (Summa cum Laude) graduate from the University of Cape Town, in unison ..... "Don't be an total ignoramus , Steve, the increase is just from last Thursday". In January 1986 Israel was suffering from runaway hyperinflation, over a thousand percent per annum,.... t took a remarkable Unity Government headed by Yitzchak Shamir and Shimon Peres (in rotation) holdings hands or perhaps under the whip of Milton Friedman to tame Zion's hyperinflation and that the threesome did so within a single year. A remarkable achievement.

The table below released by the Bank of Israel continues to include a report on 1-year inflation expectations derived from the capital market using models calculated at the Bank of Israel. These models derive the expected rate of inflation based on the difference between the yield on nominal government bonds and the yield on CPI-indexed government bonds. The table will also continue to present the forecasts of commercial banks and economic consulting companies. Beginning with this publication, the table will also report 1-year inflation expectations derived from banks’ internal interest rates.

Due to the long and varying time horizon in which monetary policy impacts on inflation, the Monetary Committee, in the framework of its discussions to set policy, examines all ranges of expectations, including medium and long term forward expectations, which provide information on the inflation environment expected over time. Therefore, the presented range of inflation expectations derived from the capital market was expanded, so that it includes expectations for the coming year, for the second year forward, the third year forward, the expectations for annual inflation from the end of the third year to the end of the fifth year, and expectations for the coming five years. In addition, the table also presents expectations for a longer period of time, beginning with the end of the fifth year to the end of the tenth year.

Date	Calculated from capital market1						Average of the inflation forecasts for the 12 months ahead4	1-year inflation expectations derived from internal interest rates5
	For the first year	For the second year (forward)	For the third year (forward)	For years 3–5 (forward)2	For five years	For years 5–10 (forward)3
Annual data:
2010	2.6	2.8	2.9	3.0	2.9	2.5	2.7	2.7
2011	2.5	2.7	3.0	2.9	2.8	2.4	2.8	2.7
2012	2.1	2.7	3.0	2.6	2.6	2.3	2.3	2.1
2013	1.7	2.4	2.6	2.4	2.3	2.4	1.8	1.6
2014	1.2	1.8	2.2	2.0	1.8	2.3	1.3	1.0
2015	0.6	1.3	1.4	1.6	1.3	2.0	0.8	0.4
Monthly data:
2015
January	0.5	1.0	1.4	1.7	1.3	2.2	0.6	0.3
February	0.8	1.2	1.5	1.7	1.4	2.1	0.7	0.2
March	0.7	1.4	1.6	1.6	1.4	2.0	1.0	0.5
April	0.6	1.4	1.5	1.5	1.3	2.0	1.1	0.6
May	0.9	1.7	1.7	1.6	1.5	2.0	1.1	0.6
June	1.1	1.6	1.5	1.6	1.5	2.1	1.1	0.7
July	1.0	1.6	1.5	1.6	1.4	2.0	1.0	0.7
August	0.5	1.2	1.3	1.6	1.3	2.0	0.8	0.4
September	0.4	1.2	1.3	1.6	1.2	2.1	0.5	0.2
October	0.5	1.0	1.1	1.7	1.2	2.0	0.5	0.2
November	0.3	1.1	1.2	1.6	1.2	2.0	0.7	0.3
December	0.1	0.9	1.3	1.6	1.1	2.0	0.6	0.2
2015
January	0.3-	0.6	1.0	1.4	0.8	2.2	0.4	0.2-
February	0.3-	0.6	0.9	1.4	0.8	2.1	0.4	0.3-
March	0.0	0.9	1.2	1.5	1.0	2.1	0.5	0.1-
April	0.1	1.0	1.3	1.4	1.0	2.1	0.7	0.1
Current data6	0.2	1.0	1.3	1.4	1.1	2.2	0.7	0.2

1 Inflation expectations derived from the capital market are defined as the ratio between the yields on unindexed government bonds and the yields on CPI-indexed government bonds (breakeven inflation). They include an inflation-risk premium component and various biases deriving from the differences in taxation and liquidity between different types of bonds. For an explanation of how the expectations are calculated click on the following link:

   www.boi.org.il/en/DataAndStatistics/Pages/InflationExpectationsExplanation.aspx

Forward expectations are the expectations for the inflation rate over a future period. The forward rates—exp(j,k)—are derived from the inflation expectations for j years and k years. That is:

   With exp(j,k) the forward expectations for inflation from the end of year j to the end of year k. For example, exp(3,5) is the expected rate of inflation from the end of the third year to the end of the fifth year. Exp(k) is the inflation expectation for k years—for example, for 5 years. All expectations data are presented in annual terms.

2  Forward expectations for full years, from the end of the third year to the end of the fifth year.

3  Forward expectations for full years, from the end of the fifth year to the end of the tenth year.

4  The simple arithmetic mean of the inflation forecasts of commercial banks and economic consulting companies that provide their forecasts to the Bank of Israel on a regular basis.

5  Expectations derived from the internal interest rates of the five large banks, calculated as the ratio between unindexed interest rates and CPI-indexed interest rates. The internal interest rate is calculated for each bank as the average of its marginal price for raising funds (deposits) and its marginal price for allocating uses (credit).

6  For expectations derived from the capital market and expectations based on internal interest rates—average for the CPI month (from the previous CPI reading through the most recent figure prior to the publication of the current CPI); forecasts—the average of forecasts which were revised after the CPI was published.