Published On: Wed, Feb 19th, 2014

Inflation Data For January 2014 : Don’t Get Carried Away

Pinchas-LandauBottom 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.
The index usually drops in January; this year it dropped by more than usual, but mostly because of transient distortions caused by the weather (see below for some examples): January 2014 was the driest on record and warmer than usual, too. 
The underlying trend remains toward lower levels of price inflation, but no dramatic change in this trend occurred in January.Clothing prices sank by a massive 8.5% and footwear by 5.2%,  together pushing the index down by 0.25%.  That was presumably caused by retailers desperately trying to offload stock they had bought after December’s storms and snow. On a seasonally-adjusted basis, the clothing and footwear sub-index fell by a paltry 0.3%.
  • 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)

inf jan 14 1


Chart of change in the CLOTHING AND FOOTWEAR sub-index of the CPI,  for January  2008 -2014(monthly change in percent)

inf jan 14 2

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About the Author

- About Pinchas Landau is an economic and financial analyst, serving as a consultant to major financial institutions in Israel and abroad on domestic and global developments. After working in banking and investment, he moved to journalism in 1983 and served as financial correspondent of the Jerusalem Post and then as senior columnist for Globes, Israel’s business daily. He has written for many international newspapers, including the Wall Street Journal and Barrons, as well as numerous professional publications. Since 1996, Pinchas has been writing and publishing The Landau Report, a unique newsletter service which analyses economic, business and financial trends in Israel, as well as tracking Israeli and regional geo-political affairs and has attracted a global subscriber base. He has also been providing quarterly and annual reports on Israel for the Economist Intelligence Unit for 25 years. Landau is also an accomplished speaker, lecturing in English and Hebrew to audiences in Israel and overseas on a range of issues relating to Israel and the Jewish world. Born in London and educated at the London School of Economics, he and his family have been living in Jerusalem since 1976.

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