Israel’s consumer price index showed an unexpected decline of 0.3% in May from April, but even as the real estate market ground to a halt due to the coronavirus lockdown housing prices actually showed a small gain, the Central Bureau of Statistics reported on Monday.
Despite the fact that large parts of the Israeli economy were still in lockdown last month, economists had expected the CPI to show a modest 0.1% increase. But prices were down almost across the board – fresh vegetables by 1.5%, other food by 0.9%, housing costs (mainly rents) by 0.3% and transportation by 0.5%.
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Prices of fresh fruit jumped 5.2%, but energy prices continued to decline amid record low global oil prices – for now. Israeli gasoline prices dropped 10 agorot (3 cents) a liter in May to 4.79 shekels after plunging 1.03 shekels to 4.89 in April. However, oil prices have since staged a small rebound and the pump price in Israel in early June had risen to 5.21 a liter.
Housing prices, which lag behind other inflation indices and aren’t included in the main CPI, rose, the statistics bureau said. The average price of a home bought in March-April was up 0.1% from the February-March average, bringing the increase over the last 12 months to 3.5%.
With large swathes of the economy closed down, collecting data on prices is not as straightforward for the statistics bureau as it usually is. The bureau adjusts the consumer basket it uses to calculate the CPI once every two years to reflect changes in consumption patterns, but it can’t make adjustments for changes created by the coronavirus crisis.
For example, since there was virtually no overseas air travel, there were no prices to compare. In that case, the statisticians impute price changes by assuming they were the same as the overall CPI or in the category that absent data belong to.
The May CPI strengthens the deflation trend that set in earlier this year. From the summer of 2017 until last February, Israeli prices had been rising based on 12-month trailing figures. But in March 12-month prices were unchanged. In April, they showed an 0.6% decline and in May that drop widened to 1.6%.
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Like most other global economies, Israeli gross domestic product is expected to contract this year amid chronic high unemployment. The Bank of Israel last month estimated GDP would drop 4.5% this year, with the CPI dropping 0.5%. But last week the Organization for Econmic Cooperation and Development issued a more bearish outlook for a 6.2% contraction, and an even sharper one if a second coronavirus wave emerges.
In the housing market, prices for new homes rose a sharp 1.7% in May, bringing their 12 months increase to 2.9%. The steepest 12-month increases were in the districts of Tel Aviv (6%) and Jerusalem (4.2%).
The rise in prices for March-April stands in contrast to the market standstill. The treasury reported earlier this week that just 2,100 homes were sold in April, the lowest monthly total since the start of the 2000s and a 74% plunge from April 2019.
Of those, the treasury said only 575 were new homes, a figure it termed a “historic low.” Only 380 of those units were sold in the free market and the rest under the government’s Machir L’Mishtaken (Buyer’s Price) program. It was the lowest new-home figure since the Second Intifada brought the Israeli housing market to a standstill in 2002, the treasury said.