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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

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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)

inf jan 14 2



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