July Sees the Biggest One-month Price Hike in Israel Since 2009

Unexpectedly sharp increase in CPI was fuelled by hikes in price of fruit, transportation and housing

Avi Waksman
Avi Waksman
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People shopping in the market.
People shopping in the market.Credit: Hadas Parush
Avi Waksman
Avi Waksman

The Consumer Price Index (CPI) increased in July by an unusually sharp rate of 1.1 percent – the biggest single-month increase in the CPI since July 2009. This brings the inflation rate in the past 12 months to 5.2 percent.

This is the highest year-long rate in 14 years, since September-October 2008, when inflation stood at 5.5 percent, an increase which was significantly higher than expected. The inflation spike in Israel comes as inflation in the U.S. slowed a little in July. The median expectation for 12-month inflation through July stood at only 4.6 percent, according to a survey conducted among 15 economists in the Bloomberg financial news service. Most economists expected prices in July alone to rise by 0.5 to 0.7 percent.

The surprise spike is reflected in a variety of categories in the index, and not just limited to the seasonal ones. The inflation rate after deducting housing costs also rose by 1.1 percent in July, as did the CPI with produce costs deducted.

According to data published on Monday by the Central Bureau of Statistics, the CPI was affected by a sharp increase in the price of fresh fruit (8.5 percent compared to June), transportation (3.3 percent, led by fuel price hikes), housing (1.1 percent) and culture and entertainment (1.2 percent). The price of hospitality and tourism in Israel and abroad jumped by 7.7 percent, pulling the CPI upward by 0.36 percent. On the other hand, the clothing and footwear category decreased by 4 percent in July, and by 5.7 percent over the past 12 months.

Fresh vegetables, as opposed to fresh fruit, decreased in price by 2.9 percent in July. Annually, the situation is reversed: Fresh vegetables have gone up in price by 4.6 percent, while fresh fruit decreased by 5.7 percent. Communication services costs decreased by 0.2 percent in July, completing a 3.2 percent drop over the past 12 months.

The food category in the CPI (which excludes produce) rose by 0.5 percent in July, completing a 5.5 percent increase in 12 months. The controlled price of bread increased over July by 5 to 8 percent, in the first phase of price increases agreed upon with the bakeries. The second increase will take place in December, and under the agreement, in April 2023 the controls over bread of all kinds will be removed. Eggs, which are also price-controlled, increased by 6.5 percent on average. Thus, for example, the price of a dozen medium-size eggs increased in July from 10.40 shekels to 11.15 shekels (value-added tax included).

Eggs in Israel that are price controlled. They became more expensive in July.Credit: Ohad Zwigenberg

Housing prices increase with a vengeance

The housing price index increased sharply month-to-month by 2 percent (May-June 2022 compared to April-May.) This completed an annual increase of 17.8 percent in the housing price index, compared to an annual increase of 15.9 percent as of last month. This is the sharpest annual increase in housing prices since the summer of 2020.

The housing price index reflects the price of houses actually sold. Housing prices are not included in the CPI. However, the CPI includes a housing item, which is calculated mainly by changes in rent prices. The weight of the housing item within the CPI is the largest of all items – 24.7 percent. This item increased by 1.2 percent in July. Within the housing item, the sub-item “other housing expenses, such as brokerage, contracting, and insurance” continued to rise rapidly – by 3.5 percent in July compared to June, and by 22.9 percent in the past 12 months.

The housing item, with public housing deducted, rose by 0.6 percent. However, the calculation of this item relies mostly on apartments whose tenants are in the midst of an existing contract, and so their rent hardly changed. However, 10 percent of renters renewed contracts in the apartments they already lived in, and their rents increased by some 3.5 percent. In 4 percent of the apartments in the sample, renters changed, and in these apartments the rent rose by 7 percent.

The constructions input for housing index rose by 0.5 percent in July. In the past 12 months, this index rose by 6.8 percent. The construction input index is partially coupled to the prices of new apartments sold but not yet completed. (Recently the Knesset has decided upon a change in the coupling mechanism.)

En route to an interest hike

Next Monday, the Bank of Israel Monetary Committee will make its periodic decision on the interest rate. Most economists expect the committee to keep raising the interest rates, having done so from 0.1 percent to 0.35 percent in April, then to 0.75 percent in May, and to 1.25 percent in early July. Raising the inflation rate is supposed to help return inflation to the central bank’s target range of 1-3 percent per year. The shekel’s strengthening in recent weeks may also aid in reigning in inflation. In early July the shekel traded for around 3.50 to the dollar, but Monday afternoon its rate reached only 3.265 shekels to the dollar.

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