Consumer Prices Up Only 0.1% in May

For last 12 months, Israeli inflation has been running at less than 1% - despite climbing housing costs.

The consumer price index rose by just 0.1% in May, the Central Bureau of Statistics announced Friday. For the first five months of the year, consumer prices rose by only 0.5% and for the past 12 months by 0.9%. If housing costs were excluded from the calculation, the inflation rate would have been just 0.3%.

The government’s current target range for inflation is between 1% and 3%. Over the past year, the inflation rate has actually been running below the lower end of the target, but the June figure may be substantially higher due at least in part due to the increase of the value-added tax rate from 17% to 18% this month.

The recent modest consumer price increases appear to be a sign of a drop in demand because members of the public don’t have spare cash, but more importantly due to public wariness over government austerity measures in the offing in the budget for this year and next. The proposed budget is slated to include tax increases, including higher income tax rates, as well as cuts in government spending.

To the extent that prices rose in May, the increases can be attributed to a 12.2% rise in the tobacco and cigarette price category, due to a tax hike on tobacco products, fresh fruit, which went up by 6%, and electricity, for which the consumer rate increased by 3.1%. The price increases were offset in part by a 4.4% price decline for fresh vegetables, automobile fuels and oils, which were down by 4.1% and transportation and communications costs, which sank by 1.1% for the month. The food price index as a whole declined by 0.2%, helped along in the drop by a 6.1% drop in salty cheeses and a 4.3% price drop for jams, but beer was up in price by 1.8%. The cost of health care rose by 0.3% and the overall education, culture and entertainment category was up by 0.5%.

“The lower than expected inflation rate is a reflection of moderating demand,” said Ehud Ratzabi, who is president of Lahav, an organization of independent businesses. “In actuality, most of the inflation is the result of steps taken by the government that will be more apparent in the June figures. Inflation is expected to rise in June by 0.7%, mostly due to the increase in the value added tax at the beginning of the month.” 

Ofer Vaknin