JERUSALM, July 14 (Reuters) - Israel's annual inflation rate posted its first decline in June for six months, data from the Central Bureau of Statistics showed on Friday, defying analysts' expectations for a gain. The consumer price index dipped 0.2 percent from a year earlier versus a 0.8 percent increase in May. Analysts polled by Reuters had predicted a 0.3 percent rise. Israeli prices fell in September 2014 and kept doing so for a total of 28 months before turning positive in January. On a month-on-month basis, the consumer price index was down a much larger than forecast 0.7 percent in June, led by big drops in prices of fresh fruit, clothing and water, the data showed. Prices of clothing and footwear, fruits and vegetables, transportation and communications, education, culture and entertainment all declined last month, while costs of housing rentals and healthcare rose, the bureau said. Expectations that inflation would stay below the government's 1-3 percent target in the near term drove the Bank of Israel to cut benchmark interest rates in early 2015 to 0.1 percent from 0.25 percent. The bank, which has held the rate steady since, projects an inflation rate of 0.5 percent in 2017, rising to 1.5 percent in 2018. It expects a strong shekel currency, increased competition in the economy and government measures to reduce the cost of living to offset higher wages, a strong economy and global inflation. The bank's next rate decision is scheduled for August 29. Bank of Israel economists believe the benchmark interest rate will remain at 0.1 percent through the first quarter of 2018, then rise to 0.25 percent in the second quarter, and end the year at 0.5 percent.
June 2017 May 2017 June 2016 Month-on-Month change (pct) -0.7 +0.4 +0.3 Year-on-year change (pct) -0.2 +0.8 -0.8 Index (base 100=Jan 2016)* 100.0 100.7 99.1 * The CPI's weightings were changed beginning with the
January 2017 index
- The June figures were well below a consensus forecast in a Reuters poll that expected a 0.1 percent decline month over month and a 0.3 percent rise year over year. - The producer price index declined 0.7 percent in June. It has fallen 0.2 percent over the past 12 months.
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(Reporting by Steven Scheer; Editing by Gareth Jones)