Isranomics

Israel’s Inflation Hits a Two-Year Low, Recording a 3% Annual Rate as December CPI Declines

by | Jan 15, 2024 | Economy | 0 comments

The consumer price index in Israel witnessed a marginal decrease of 0.1% in December, according to the latest data released by the Central Bureau of Statistics. Despite this slight downturn, the index recorded a 3% increase over the entirety of 2023, aligning perfectly with the upper limit of the government’s inflation target range, which is set between 1% and 3%. It is worth noting that this is a significant drop compared to 2022, where prices experienced a notable 5.3% surge.

December saw notable changes in various index components. Fresh fruit and culture and entertainment sections dropped by 2.2% each, while clothing and footwear decreased by 1.8%, and furniture and home equipment were discounted by 0.7%. Fresh vegetables, however, became more expensive by 3.2%, and the housing section increased by 0.3%. In rent contracts, new tenants experienced a 4.4% increase, while renewing tenants faced a 3% hike.

Apartment prices, not factored into the consumer price index, showed a monthly decrease of 0.2% from October to November, and on an annual basis, a decrease of 1.8%. The district-wise breakdown revealed declines in Tel Aviv (4.5%), the centre (2.3%), and the south (0.5%), while Jerusalem (2.2%), the north (0.8%), and Haifa (0.3%) saw increases. New apartment prices decreased by 0.6% monthly and 3.9% over the past 12 months.

The slowdown in inflation is attributed to multiple factors, including the rise in interest rates since April 2022 and the appreciation of the shekel in November. Additionally, the ongoing war has contributed to a decrease in demand, consequently slowing the rate of price increases.

These latest inflation figures are expected to influence the upcoming decision by the Bank of Israel on February 26. In response to the moderation in inflation, the Bank of Israel had already reduced the interest rate from 4.75% to 4.5% on January 1. The January inflation data, set to be published on February 15, will likely play a role in the bank’s decision regarding further interest rate adjustments.

A Bloomberg survey had anticipated a 0.1% increase in the index for December, which would have brought inflation down from 3.3% in November to 3.1% in December.

In a comprehensive review of 2023, most sections of the index experienced increases. Notably, vegetables and fruits saw a 13.6% rise, food increased by 4.2%, transportation and communication by 3.8%, and housing by 3.5%. However, the clothing and footwear section witnessed a notable decrease of 10.4%, and the furniture and home equipment section decreased by 4.3%.

Excluding vegetables and fruits and housing, the consumer price index rose by 2.3% in 2023.

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