Food prices have risen in Israel during the recent period (Al Jazeera)

At a time when Israelis feel that price levels have risen significantly, the Israeli Central Bureau of Statistics announced the stability of the consumer price index last January on a monthly basis, with its decline on an annual basis to 2.6%.

This means that the index has become below the upper limit of the target range set by the Bank of Israel, which ranges between 1 and 3% for the first time in 18 months, which painted a picture among the Israelis showing that this index does not reflect reality, according to a report published by the Israeli economic newspaper Globes.

flight tickets

The report asked, “What is the significance of the 7.6% drop in airline ticket prices in January, which contributed to lowering the general consumer price index at the height of the war?” adding, “Does this indicate the real cost of purchases for Israelis?”

The newspaper explained that this is not the first time in recent years that this discussion has been raised. During the “Covid-19” pandemic, there were sharp changes in consumption patterns, which are more extreme than at the present time. No one traveled, no one went out to restaurants, and people bought more. Online, however, a 2020 study published by the Bank of Israel found that even after adjusting for new consumption patterns, the CPI rose 0.2%.

'Exaggerated fear'

Globes quoted Itamar Kaspi, head of the Monetary Analysis Unit in the Research Department at the Bank of Israel and one of the authors of the study, as saying earlier that there is an exaggerated fear of errors in calculating the consumer price index.

Caspi said the problem did not necessarily lie in the CPI itself, which he said was “calculated according to recognized and modern international standards,” but in the biased public perception of price changes.

He explained that people are more sensitive to purchases they make frequently, such as food, compared to purchases they make occasionally, such as clothing or home renovations.

Infographic of Israel's economic losses due to the Gaza War (Al Jazeera)

A study conducted by the US Federal Reserve Bank branch in San Francisco showed that the prices of everyday purchases - especially fuel and food - have an exaggerated impact on consumer perceptions.

The newspaper says that many analysts believe that the rise in prices will reach the official figures issued by the Central Statistical Office soon. Yonatan Katz, chief economist at Leader Capital Markets, states that “in the past few months we have witnessed that the war has a moderate impact on inflation in the short term.” .

But inflation is expected to accelerate somewhat as the year goes on. Some imports and cars for sale, for example, will become more expensive due to higher shipping costs.

Rents are also expected to rise in the second half of the year due to housing shortages and demand from many evacuees from war zones, in addition to rising food prices in the coming months.

Katz says that the rise in the value-added tax rate in January 2024 from 17 to 18% will give the inflation index an additional boost.

Source: Israeli press