Bottom line: The Consumer Price Index (CPI) rose by 0.1% in July — but it has risen by the same amount for the seven months ending in July! For the 12-month period through July the index shows a rise of only 0.3%. In short, as we have been warning for some time, the Israeli economy is slipping into deflation. Indeed, once housing prices are excluded, the data show that deflation is already here.
The changes in the various sub-indices in July were minor and, for the most part, driven by seasonal factors. The fact that most sub-indices are showing a decline year-to-date (see graph below) is a better picture of the overall situation.
The only area where prices were consistently rising is housing — and even here, the housing sub-index of the CPI, which measures rental prices, not sale prices, posted a decline in July.
The rate of increase in the Central Bureau of Statistics’ Housing Index, which is not part of the CPI, fell to 7.7% in the year to May-June 2014 (the latest data available), from 9% in the year to April-May.
Wholesale prices are falling sharply. The Index of Wholesale Prices of Industrial Output for Domestic Use fell by 0.6% in July and by 1.3% both year-to-date and in the trailing twelve months ending in July.
The recent sharp drop in energy prices on global markets will find expression in price reductions in many sectors, both at the retail and wholesale levels, over the coming months.