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Bottom line: Don’t get carried away. The seemingly sharp drop in the January CPI, of 0.6% and which caused a stir among some economists, is not more than an exaggerated seasonal phenomenon.- Most of the other sub-indices also fell, although each contributed relatively little to the overall decline.
- The housing sub-index, which measures rental prices, was the other important factor responsible for the overall decline. It fell by only 0.6%, but its 25% weighting meant that it pushed the index down by 0.15%.
- Despite this somewhat surprising drop in rental prices – an area that demands attention in the coming months to see if the fall continues – the House Price Index, which is not part of the CPI, rose by 1.5% in the latest reporting month. This suggests that the house price boom is far from over – and the latest mortgage data support that conclusion.
- The Index of Domestic Industrial Output, which is the replacement of the old Producer Price Index, rose marginally, as did most of the other price indices published by the CBS. This is further evidence that there is no strong deflationary pressure in the economy.
- When was the last time that the prices of ice-cream (2.4%) and sunglasses (2.7%) rose in January?
Chart of change in the CPI for January, 2008 -2014(monthly change, in percent)
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Chart of change in the CLOTHING AND FOOTWEAR sub-index of the CPI, for January 2008 -2014(monthly change in percent)
