Israeli Inflation Ends 2023 on a High Note: Consumer Prices See Yearly Increase of 3%

Despite a 0.1% decrease in the Consumer Price Index (CPI) for December, Israel concluded 2023 with a yearly inflation rate of 3%, precisely hitting the upper limit of the government's targeted range (1%-3%). This marks a notable slowdown compared to 2022, which saw a substantial 5.3% increase in prices.

Notably, apartment prices, excluded from the CPI, experienced a monthly decrease of 0.2%, with an annual decline of 1.8%. The districts of Tel Aviv, the center, and the south witnessed price drops, while Jerusalem, the north, and Haifa experienced increases.

New apartment prices fell by 0.6% monthly and 3.9% over the last 12 months. In December, fresh fruit and culture/entertainment sections each saw a 2.2% decrease in the index. Conversely, fresh vegetables became more expensive by 3.2%, and the housing section increased by 0.3%.

The slowdown in inflation is attributed to rising interest rates since April 2022, shekel appreciation in November, and the impact of ongoing geopolitical events on demand and price increases.

These latest inflation figures are poised to influence the upcoming interest rate decision by the Bank of Israel on February 26. The central bank had already reduced interest rates on January 1, 2024, from 4.75% to 4.5%. If January's inflation data, to be published on February 15, continues the moderation trend, it may provide grounds for further rate reduction.

The summary of 2023 reveals increases in most CPI sections, including a significant rise in vegetable and fruit prices by 13.6%, and a 3.5% increase in housing costs. Excluding these categories, the CPI rose by a more modest 2.3%.

The lower quintile index increased by 2.9%, while the upper quintile, representing households with higher incomes, experienced a slightly sharper rise of 3.2%. Certain sections, such as car insurance (14.7%), trips abroad (10.3%), and home help (7.8%), saw notable price increases in 2023.

In the construction sector, the input price index, linked to new apartment prices, rose by 2% in 2023, compared to 4.8% the previous year. Factors contributing to this increase include a 1.4% rise in the labor wage index and a 3% increase in the prices of materials and products.

As the Bank of Israel considers these economic indicators, the nation awaits further developments in monetary policy and economic stability in the coming months.