CPI rose in August by 0.5% compared to the previous month - Inflation: stands at 4.1%

In an unexpected turn of events, Israel's Consumer Price Index (CPI) for August surged beyond initial forecasts, registering a 0.5% increase. Early predictions had indicated a more modest rise of 0.3%-0.4%. This sharp uptick has pushed the country's inflation rate to 4.1%, exceeding the previously estimated 3.9%. The announcement was made by the Central Bureau of Statistics (CBS) on Friday.

The driving forces behind this sudden increase are primarily attributed to the significant devaluation of the shekel since the beginning of the year and the global rise in fuel prices.

Several sectors played a pivotal role in driving up the price index. Fresh vegetables saw a substantial increase of 1.9%, followed by transportation at 1.8%, culture and entertainment at 1.3%, and housing at 0.7%. Conversely, notable price reductions were observed in the fresh fruit category, down by 3.6%, and clothing and footwear, down by 2.5%. An additional contributing factor to the index's increase was the soaring prices for vacations and accommodations in Israel and abroad, spiking by 6.4% and contributing 0.3 percentage points to the overall increase.

The cost of rent continued its rapid ascent, with an increase of 0.7% in August alone (Israel's national average). For tenants renewing their contracts, the increase amounted to 3.8%, while completely new tenants faced an even steeper rise of 8.4%.

However, the rate of increase in apartment prices appears to be slowing. In June-July 2023, apartment prices decreased by 0.1% compared to the preceding period. This follows a previously reported decline of 0.2% for May-June 2023. Nevertheless, when viewed annually, apartment prices in June-July 2023 increased by 3.2% compared to the same period in the previous year.

Examining regional variations, Jerusalem led the decrease in prices in June-July 2023 compared to May-June 2023, with a 1.9% decline. In the Central District, prices dipped by 1.2%. Conversely, in Haifa and Tel Aviv, prices actually increased by 0.9%, with southern and northern regions also experiencing slight price hikes of 0.5% and 0.3%, respectively.

The new apartment price index recorded a monthly decrease of 0.8%. Excluding transactions with government support, the decrease was less pronounced at 0.4%. While new apartment prices remain higher than a year ago, the annual increase has been limited to 2.6%.

The unexpected surge in inflation may influence the Bank of Israel's forthcoming interest rate decision scheduled for the end of October. In its last two decisions, the Bank of Israel maintained the interest rate at 4.75%. Depending on the CPI figures for August and September, to be published in October, the Bank will determine whether to continue raising the interest rate.

As Israel grapples with these economic developments, attention will be closely focused on the central bank's response and its implications for the nation's financial landscape.