Housing, Fresh Fruit Depressed Nov. CPI

The consumer price index fell by 0.6% in November to 106.5 points, pretty much as economists had expected. From the start of the year the index tracking consumer prices has risen by almost 4%, which means that inflation ran higher than desirable this year - and you can blame housing and tomatoes. And other fresh fruit and vegetables, to be fair.

If housing prices are excluded, the index dropped by 1.4% in November.

From January to November the housing index increased by 10.3% and the index tracking foodstuffs rose by 9.4%, in no small part because of spiking commodity prices in world markets. The index tracking fresh fruit and vegetables has risen nearly 7% this year.

The poorer families of Israel suffered more from the climb of the consumer price index this year. They devote a greater part of their income to paying for housing and food than the rich do. When the figures are weighted accordingly, we find that the consumer price index relating to the poorest 20% increased by 4.8% in the first 11 months of the year. The CPI relating to the wealthiest 20% increased by 3.4%.

Most analysts believe that the consumer price index will remain negative in December and January, bringing down inflation figures for the last 12 months. But in any case, the CPI figure for 2008 will be above 3%, which is the ceiling of the range defined as price stability, that range being 1% to 3%.

The one thing that's for sure, in the eyes of the marketplace, is that the Bank of Israel will be lowering Israeli interest rates at month-end, from the already historically lowest level of 2.5%. Never before have interest rates been so low, but central banks throughout the West are bringing down interest rates to levels never seen before. The only question, in the eyes of the market, is by how much Governor Stanley Fischer will cut the local rate: 0.25% or 0.5%.