Poor Felt Inflation's Sting More Than Rich

Interest rates likely to be raised in light of December's 0.4% CPI increase.

Prices have increased for the country's poorest citizens more than they have for the wealthiest, according to statistics published by the Central Bureau of Statistics over the weekend.

Prices rose 0.4% in December, slightly more than had been expected.

Analysts say this increases the chances that Bank of Israel Governor Stanley Fischer will raise interest rates at the end of this month to 2.25%, up from the current 2%, even though this is likely to make the already-robust shekel stronger against the dollar and the euro.

Inflation is expected to be 0% for January.

In total, prices increased 2.7% in 2010, within the government's price stability range of between 1% and 3%. The inflation rate missed the mark during the four preceding years (2006 through 2009 ).

However, inflation was relatively high during the last three months of 2010, striking an annualized rate of 4.6%. This means inflation would have been 4.6% had it continued at that pace for a year, not just three months.

The sharpest price increases for December were for clothing and shoes, 9.8%, and communications, 2.5%. But the price of fresh vegetables decreased 2.2%.

Over the year, some of the sharpest price increases were for fresh produce and housing. Without the former, the CPI rose 2.2% for the year; without the latter, it rose 1.9%.

The price increases were not felt equally across society - the CPI rose 3% for the poorest 20% last year, and 2.2% for the richest 20%.

This means the poorest people saw the prices of the products and services they buy increase more than the average citizen did, while the richest people saw their prices increase less than the average citizen did.

This runs counter to the declarations by the prime minister and the finance minister that they want to close social gaps and improve living standards for the country's poorest citizens.

The main reason for this disparity between the rich and the poor is the jump in the price of fresh produce, which has twice the impact on the poorest 20% than on the richest 20%.