Israel's Consumer Price Index Rises 0.6% in May, Housing Price Spike Slows

Relatively moderate CPI rise may reflect successful efforts by the Bank of Israel to cool inflation, which rose slightly, from 4.0% in April to 4.1% in May

Nati Toker
Nati Tucker
Apartment buildings in Petah Tikva, last week. Housing prices continue to rise.
Apartment buildings in Petah Tikva, last week. Housing prices continue to rise.Credit: עופר וקנין
Nati Toker
Nati Tucker

The consumer price index (CPI) rose 0.6% in May. This is slightly less than most forecasts, and it may reflect successful efforts by the Bank of Israel to cool inflation. Food prices rose by 0.9% for the month.

Despite the relatively moderate increase, the annual inflation rate in Israel (the increase in prices for the past 12 months) rose slightly, from 4.0% in April to 4.1% in May – above the central bank’s target range of 1-3%. The figures were released Wednesday evening by the Central Bureau of Statistics.

Significant price hikes were mostly limited to seasonal items. The average price of fresh fruit spiked by 13.8%, clothing and footwear prices rose 2.2%, food became 0.9% more expensive, culture and entertainment prices increased 0.8%, and transportation costs rose 0.5%. The price of fresh vegetables dropped 0.7%.

Concurrently, housing prices (which are not included in the CPI) continued to rise, but more moderately than before. According to CBS data, housing prices increased 0.9% based on deals in March-April 2022, versus deals closed in February-March 2022.

This puts housing prices up 15.4% for the 12 months ending in April. However, this is actually a slightly slower increase than last month. As of March, prices had increased 16.3% for the prior 12 months.

A Bloomberg survey of financial analysts found that on average they expected the CPI to increase 0.72% in May, putting annual inflation at 4.3%.

The last time inflation was so high in Israel was in 2011, when annual inflation hit 4.4% that March. Three years prior, inflation hit 5.4%.

Bank of Israel Governor, Prof. Amir Yaron said last week that the bank expects inflation to increase in the coming months – “perhaps to even more than 4%.” The central bank expects the CPI to continue to rise throughout the year, leveling off toward the end of the year, before returning to the target range of 1-3% in 2023.

To moderate inflation, the central bank is expected to continue raising interest rates. The central bank raised rates twice at its two most recent interest rates sessions, setting the representative rate at 0.75%. The Bank of Israel’s monetary committee is expected to raise rates again at its upcoming session, on July 4

Inflation in Israel is still moderate compared to other countries. Inflation in the U.S. hit a 40-year record high at 8.6%, while inflation in Europe hit 8.1%.

The consumer price index is increasing due to a range of factors on both the supply and demand sides. On the demand side, quantitative easing by governments in order to support citizens and businesses during the COVID-19 pandemic, as well as the Bank of Israel increasing the monetary supply. These measures increased demand, putting upward pressure on prices.

However, the main source of pressure on prices in recent months is due to the supply side. It began with disruptions to the global supply chain due to the pandemic, and continued with the war in Ukraine which sent energy and commodity prices skyrocketing worldwide.

The chief economist at Leader Capital Markets, Jonathan Katz, says that “May’s inflation rose by 0.6%, compared to market expectations of 0.6-0.8% (we predicted 0.8%.) The surprise of the CPI was clothing and footwear, which only increased by 2.2%, less than the usual seasonal increase of 7-8% in this month (we were expecting a correction approaching 9%.) Clothing prices are down 6% compared to a year ago (this compared to a 5% increase in the U.S.). Definitely odd.”

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