The consumer price index rose 0.6% in May, slightly lower than analysts' forecasts, which forecast a 0.7% increase, thus completing an annual increase of 4.1%.
Following this, we tried to understand what the continued upward trend of the index means and how moderate inflation in the country is compared to the world.
How is the consumer price index calculated?
The Consumer Price Index is published once a month by the Central Bureau of Statistics, and consists of several services and products.
This is how the index is structured: about 25% of the rent index, about 19% of transportation and communications, about 15% of food, about 9% of housing maintenance, about 11% of education and culture, and more.
The index is published every 15 months.
What does the consumer price index mean and its rise?
The Consumer Price Index measures the change in prices of various products and services.
When the index rises, it means that the level of prices in the economy rises - that is, there is inflation.
In Israel, the government approves an inflation target in accordance with the Bank of Israel's recommendation, which currently stands at 3% -1%.
Inflation has exceeded the target range and has already passed the 4% level in the last 12 months.
Shopping at the supermarket in Be'er Sheva, Photo: Dudu Greenspan
How do we compare internationally?
In Israel, although inflation has intensified in recent months and is at a peak of more than a decade, it is still considered relatively moderate compared to other developed countries, where the rate of inflation is double that of Israel.
In the US, for example, inflation has jumped to 8.6% in the last 12 months, in the eurozone by 8.1% and in the UK by 9%.
Why is inflation in Israel relatively moderate in international comparison?
The main reasons for this are the high initial price level in Israel and the relative stability of energy prices.
The latter is explained by long-term contracts signed by the IEC for the supply of natural gas from Tamar and their companions.
Another reason, and no less important, is the conservative policy adopted by the Bank of Israel during the corona crisis compared to the United States and the eurozone, which increased the rate of money printing and thus created enormous inflationary pressures.
Why is everything getting more expensive after all?
The wave of price increases began in Israel, as well as around the world, as early as the end of last year with the increase in demand after two years of Corona.
Inflation intensified with the outbreak of the war between Russia and Ukraine.
The prices of energy and commodities (for example, wheat, corn, coal, etc.) have skyrocketed by tens and hundreds of percent.
For example, the price of oil, which has crossed the $ 120 a barrel, causes fuel prices to rise in Israel and around the world, and as a result - to exacerbate inflationary pressures.
Experts do not expect the price of oil to fall in the near future.
According to the forecast of Yonatan Katz, a macro strategist at Leader Capital Markets, oil could continue to soar and reach $ 140 a barrel in a year from today.
A large part of the increase in prices in the country is "imported inflation", but some is due to the circumstances created in Israel - for example the rise in apartment prices and rental prices.
What will the Governor of the Bank of Israel do?
In order to moderate the level of inflation in the economy at the end of May, the Bank of Israel raised the interest rate in the economy by 0.4% to 0.75%.
The Bank of Israel's next announcement on the level of interest rates in the economy will be on July 4, and estimates in the interest rate market range from an increase of 0.25% to 0.5%.
Finance Minister Lieberman with the Governor of the Bank of Israel, Photo: Oren Ben Hakon
Is Israel on the verge of recession?
The growth rate of Israel's economy and the world economy has slowed in recent months, and many economists are talking these days about fears of stagnation - the situation in which inflation remains high, and because interest rates are rising the economy is entering a recession.
With all due respect to the prophecies of rage, there are some unique factors in Israel that support growth - so most estimates today speak of a slowdown in economic activity without entering a recession.
The factors contributing to relatively high growth in Israel are the high growth rate of the population - about 2%, diversified exports and less sensitive to growth abroad, such as defense exports and pharmaceuticals. In addition, real wages are expected to support private consumption.
Is the US on the road to recession?
The story of the United States is more complex - because inflation is double that of Israel, the rate of interest rate hike will also be greater.
The answers with the help of Yonatan Katz, macro strategist at Leader Capital Markets
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