CPI and inflation data: December 2015 and full-year 2015.

Bottom line: Israel has moved steadily deeper into negative inflation — with the difference between this euphemism and outright deflation gradually evaporating. The second successive year of negative inflation — the CPI fell 1% in 2015, after 0.2% in 2014 — and the prospect of more of the same in at least the first part of 2016, makes the Bank of Israel’s task of pushing inflation back into the mandated range of 1%-3% per annum ever harder.

The intensification of deflationary pressures both globally and domestically suggest that the central bank may feel obliged to push interest rates into negative territory during 2016.

  • In December, the CPI fell by 0.1% — and every general and sectoral price index tracked by the Central Bureau of Statistics recorded a fall.
  • The only consistent exception to the overall disinflationary trend remains the housing sector. The CPI’s Housing Index, not part of the CPI, is picking up speed again and its annual rate of increase rose to 7.6% in the year to October-November 2015, the latest data-point.
  • Other than the proxy for housing in the CPI, the only other component pushing prices up in 2015 was fresh vegetables, which rose 29% during the year — double the decline it posted in 2014. But these moves are transient and 2016 will probably see another reversal.
  • Housing and vegetables together pushed up the CPI by 0.7% in 2015. These contributions were swamped by the falls in energy and domestic electricity prices, which together pushed the CPI down by 0.95%, as well as many other components with smaller contributions to the downside.
  • The Index of Prices of Industrial Output for Domestic Usage — in effect, the PPI — fell by 7.3% over 2015. Even net of energy, this index dropped 2.9% — thanks to the collapse in commodity prices.
  • At the wholesale level, price indices fell for all categories of industries, as measured by technological intensity — including the high-tech sector.
  • Consumer prices fell more for upper-income families than for lower-income ones, mainly because of the greater weight of energy/ oil / petrol prices in the ‘basket’ of rich families, versus the greater weight of fresh vegetables in the ‘basket’ of poor families.

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