Fresh produce.
Fresh produce Photo by Ofer Vaknin
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The August consumer price index has shot up 1%, surprising analysts, who were looking for an increase of 0.6% to 0.7%.

The spike announced by the Central Bureau of Statistics on Friday stems from three main factors: higher taxes on beer and cigarettes, price increases elsewhere around the world that filtered through to Israel, and seasonal fluctuations that boosted prices of items such as fruit, vegetables and housing. So far this year, consumer prices have increased 2.1%. When housing costs are excluded, the number is 1.6%.

The 12-month rise in the index is 1.9%, well within the government's target range of 1% to 3%. If housing costs are excluded, the rise is only 1.4%.

But the CPI is expected to rise in the coming months due to government measures such as the 1% hike in the value added tax as of September 1. Another factor is the continuing rise in food and fuel prices around the world. In addition, Israeli retailers are expected to raise prices after this month's Jewish holidays.

Just last week, Prime Minister Benjamin Netanyahu dubbed efforts to lower the cost of living as one of his government's main challenges. Despite the inflation pressure, analysts expect the Bank of Israel to leave interest rates at 2.25% through the rest of the year - at least.

In August, food prices increased 0.9%, driven by items such as chicken (7.6% ), frozen fish (3.9% ) and ice cream (3.5% ). The prices of fresh vegetables went up 15.8% while fresh fruit became 5.4% more expensive. The biggest price spikes for vegetables included cabbage (57.3% ), beets (41% ) and tomatoes (27.6% ). Standouts among fruits included lemons (43.6% ), avocados (40% ) and bananas (24.1% ).

Ehud Ratzabi, who heads Lahav, the organization of independent businesses, said the government must support smaller companies. "The government must take active steps to implement its decision to encourage small and mid-sized businesses in advance of a slowdown in the economy and an increase in unemployment," he said.

Sharp price increases for items such as cigarettes, bread, fuel and housing will decrease consumption and hit small and other independent businesses, he said, adding that such firms are already having a tough time. Ratzabi also called on the Bank of Israel not to raise interest rates.

Cigarette prices in August increased on average by 14.2%, while beer prices rose 12.2% due to the higher taxes. The price of vacation expenses in Israel increased 13.3%, while the retail cost of fruits and vegetables rose 7.9%. Auto fuels and lubricants were 5.8% more costly.

These increases were offset somewhat by a 6% decline in the retail price for clothing and shoes and a 1.1% drop in the price of communications. The cost of medical care eased 0.1%.

The housing cost index rose 1.1%, while home maintenance costs increased 0.4%. The price of household furniture and equipment climbed 0.6%. The cost to the consumer of culture and entertainment rose 1.3%. Price levels in the broad category of transportation and communications jumped 1.3%, but cellular telephone services dropped 1.5% amid stiff competition in the industry.