Israel's Annual Inflation Rate Rises to 4.4 Percent in 11-year High

The consumer price index rose 0.4 percent in June, as Israel joins the global inflation trend

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An Israeli flag flutters outside the Bank of Israel building in Jerusalem.
An Israeli flag flutters outside the Bank of Israel building in Jerusalem.Credit: Ronen Zvulun/ REUTERS

The consumer price index rose 0.4 percent in June, as expected, bringing the annual inflation rate to 4.4 percent, the highest since March 2011 as Israel joins the trend around the world.

Notable price increases were in transportation, up 2.4 percent increase; housing, up 0.7 percent; and entertainment, up 0.7 percent. Health expenses rose 0.6 percent, while seasonal factors sent fruit and vegetable prices down 8.5 percent. Clothing and shoe prices decreased 3.4 percent.

Over the past 12 months food prices have risen 5.2 percent (excluding fruit and vegetables), with flour prices up 10.3 percent and soft drink prices soaring 24 percent due to new taxes.

House painting and plastering costs have surged 21 percent, with vacation and excursion costs up 10.8 percent. Maintaining a car has become 12.4 percent more expensive, though fresh fruit prices have fallen 13.5 percent.

The Bank of Israel and the Finance Ministry believe that inflation in Israel will reach 5 percent by the end of the year before easing off. Next year, inflation is expected to return to the Bank of Israel's target range of between 1 and 3 percent.

Housing prices increased 1.4 percent in April and May, reflecting an annualized rate of 18 percent. Over the past 12 months home prices have climbed 15.9 percent, the biggest one-year increase out of any year in the past decade.

There were expectations that price increases would moderate as home sales dropped 16 percent in May, a trend that has been building since the third quarter of last year. But sellers apparently have not been pushed to lower their asking prices.

Contractors have also been raising prices, with no relation to the construction price index, which rose 0.6 percent.

Rental costs have also increased significantly. Renters who renewed contracts in June started paying 3 percent more on average, while tenants who moved in June are paying 6.5 percent more than the previous tenants. After factoring in renters who are mid-contract, rental prices rose 0.4 percent, on par with the CPI.

Meanwhile, Prime Minister Yair Lapid and Economy Minister Orna Barbivai have called on supermarket chains to hold off on the planned 20-percent increase in regulated bread prices this week. The chains announced that they would comply. Barbivai had ordered the increase at the recommendation of an interministerial committee and a petition by bakeries to the High Court of Justice.

The freeze will force private grocery chains to absorb the rising cost of bead, since no similar agreement was reached with bakeries. Barbivai will continue talks with the bakeries, and Lapid is due to convene an urgent meeting on the matter Sunday. Finance Minister Avigdor Lieberman cannot address the issue since one of his lawyers represents the bakeries as well.

Governments have been loath to raise bread prices, even when this has been economically justified. The looming election makes it difficult for cabinet members to vote for lifting price controls for bread, even though the interministerial committee setting price controls recommended this given the state of competition in the bread industry and spiking wheat prices due to Russia’s war on Ukraine.

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