CPI and Inflation, December and Full-Year 2013

Bottom line: The 0.1% rise in the CPI for December was – for a change – in line with forecasters’ consensus prediction and brings the annual rise in the Index to 1.8% for 2013, compared with 1.6% in 2012. These are very benign levels and confirm the absence of any inflationary pressures in the Israeli economy. Housing prices continue to rise, but these are not feeding through to other sectors. If the economy weakens further, there is a danger of deflation – especially if the shekel continues to rise in value.

  • The factors at work in December were mainly transient or seasonal: fresh vegetables prices jumped after the severe storm in early December, and clothing and shoe prices also rose strongly. Fuel prices also rose. Offsetting these were falls in apartment rents, health and education costs.
  • Inflation in 2013 as a while was driven by a sharp rise in the prices of fresh fruit and vegetables, food prices generally, rents and other home maintenance costs. But energy prices dropped, as did clothing and shoes.
  • These changes had quite disproportionate impacts on the well-off and the poor. The rise in the CPI for the lowest socio-economic quintile was almost double that of the rate for the highest quintile – 2.5% versus 1.3% (see graph).

Apartment prices, as measured by the House Price Index (which is not part of the CPI), rose by 8.6% in the 12 months thru October-November, far higher than any of the main sub-indices of the CPI.

 

Consumer Price Index changes for 2013, for top and bottom quintiles (as measured by per capita disposable income)

Percent Change Compared to December 2012

CPI Dec

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