The consumer price index for the month of March jumped by 0.6%, compared to the average forecast for an increase of 0.5%. The increase in the index at this rate again brings inflation (the increase in the index in the last 12 months) closer to the upper limit of the target range of the Bank of Israel (1%-3%), as it now reaches a rate of 2.7%, compared to 2.5% in February.
According to the Central Bureau of Statistics (CBS), the most significant price increases were recorded due to seasonal events in the clothing and footwear sector, a section that increased by 2%; a 1.5% increase in the health and entertainment areas; and additional increases in the health, transportation and miscellaneous sections. Rate of increase in apartment rental prices It moderated and reached 2.7% for new tenants, and 2.6% for tenants who renewed a contract.
The early estimates were for an increase of 0.5% due to the acceleration of energy prices in the world following the increase in oil prices; and also due to seasonal phenomena concerning the field of clothing and footwear. This increase was supposed to raise annual inflation in March to a rate of 2.6%, slightly higher than the rate of 2.5% recorded in February. The increase in the price of flights abroad in recent months also affected the price index for March.
Inflation in Israel (the annual change in the consumer price index)
March 2023
April
May
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July
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January 2024
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March
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The item that made the most significant contribution to the increase in the index is cigarettes and tobacco, the price of which increased by 7.1% due to the increase in the tax rate in the Knesset as part of the approval of a new budget for 2024. The increase in cigarette prices alone contributed to an increase of almost 0.2% in the March index.
Apart from that, significant sections that contributed to the increase of the index are housing services owned by the tenants – a section that mainly reflects the increase in rental prices, which increased by 0.7%. Since it is a section with a significant weight in the total consumption, it contributed to the increase of the index by 0.12%. The vacation and travel sector in Israel also jumped, as did the prices of trips abroad and painting and plastering services – apparently due to the lack of workers.
The upward trend in apartment prices – which are not part of the consumer price index – also continues. According to the CBS, in January-February 2024 there was a 1% increase in apartment prices in Israel, compared to December 2023-January 2024. This is compared to a 1.2% increase in apartment prices in December 2023-January 2024. The consistent increase in apartment prices for the third month may mark the beginning of A new rising trend, despite the high interest rate and the uncertainty in the market due to the lack of workers. However, in the annual trend, apartment prices still registered a decrease of 2.1% in the last year.
The sharpest increase in apartment prices was recorded in the Tel Aviv district, with a 2.1% jump in prices in January-February 2024. A sharp increase of 1.3% was also recorded in Haifa, while a relatively moderate increase of 0.7% was recorded in Jerusalem. In the central and southern districts, increases of 0.5% and 0.4% were recorded, respectively, while in the northern district there was actually a 0.2% decrease in prices – a natural change against the background of the security situation and the evacuation of residents.
The increase in the index comes against the background of the Bank of Israel’s monetary committee’s decision from the beginning of April not to lower the interest rate in the economy and to keep it at a level of 4.5%, due to the uncertainty and the increase in geopolitical risk. The Governor of the Bank of Israel, Prof. Amir Yaron, then referred to inflation expectations for the next 12 months, which have risen in recent weeks towards the upper limit of the Bank of Israel’s target range (1%-3%). This, according to the governor, is partly due to the government’s measures related to taxation, such as the VAT increase at the end of 2025.
The Bank of Israel’s next interest rate decision will only be published on May 27, more than a month from now. By then, the inflation data for April will also be published, and they are the ones that will influence the bank’s next interest rate decision along with the March data.