Consumer prices increased in January, with Israelis facing higher costs for a range of goods and services, led by a rise in fresh fruit prices and utility costs, after a series of government tax hikes came into effect, data by the Central Bureau of Statistics showed on Friday.
Annual inflation over the past 12 months accelerated to 3.8 percent after declining to 3.2% in December. The government’s target range for annual inflation is between 1% to 3%.
On a monthly basis, the consumer price index (CPI) — a measure of inflation that tracks the average cost of household goods — rose by 0.6% after declining 0.3% in December and 0.4% in November and accelerating 0.5% in October. The January figure was in line with analysts’ expectations of an increase of between 0.5-0.6%.
Mizrahi Tefahot Bank chief markets economist Ronen Menahem said the high January CPI index was mainly fueled by last month’s increase in value-added tax (VAT).
“Most of the VAT effect is probably already reflected in the January data, although it is likely to continue in the next month as well,” said Menahem. “It is clear that this figure (and probably also the February index) will not be a catalyst for the first interest rate cut since January 2024, but neither will there be any fear of a rate increase.”
Even though inflation is above the target range, Dror Ohev Zion, CEO of real estate marketing firm Dara, said he expects borrowing costs to come down over the course of the year, as the move is “critical for the continued recovery of businesses after the war and households that are suffering under the burden of expensive mortgages and price increases.”
Illustrative: A worker from the Israel Electric Corporation seen repairing a fault in the electricity networks. August 29, 2020. (Yossi Aloni/FLASH90)
On January 1, tax hikes came into effect to boost state income and fill a fiscal gap amid high defense expenses in the 15-month multifront war. VAT rose from 17% to 18%. VAT is a consumption tax that is collected through the purchase of goods and services, and is levied on most consumer goods and services, except for fresh produce.
As a result, several companies announced price hikes on their products entering into effect on January 1, including a number of products from food giants Osem-Nestle, Strauss-Elite and Unilever.
In addition, prices on an array of goods, including water and electricity as well as some taxes such as local authority taxes (arnona) went up at the start of the year, as many households were already struggling to make ends meet amid the rising costs of living during the 15-month war with the Hamas terror group.
In January, price increases were seen in the costs of fresh fruit, which rose 2.5%. Food items were up 1%, and home maintenance costs were 2.1% higher, according to the statistics bureau. Electricity costs for households edged up 4.1%.
These were offset by price declines in clothing and footwear, which fell 4.2%, while fresh vegetable prices were down 2%. Travel costs, including flights abroad, dropped 5.7% as some foreign airlines resumed their services to and from Israel, and prices of hotel stays in Israel declined 5%.
In the real estate market, rents on renewals of contracts rose 2.6% and rents on contracts for new tenants jumped by 3.3% in January.
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