Israel consumer price index surprises with higher-than-expected April figure up 0.8%

Consumer prices in Israel in April rose at almost double the rate than was forecast, the Central Bureau of Statistics said on Monday, putting further pressure on the Bank of Israel to hike interest rates again next week.

The consumer price index (CPI), a measure of inflation that tracks the average cost of household goods, rose by 0.8% in April, above analysts’ expectations of 0.4% to 0.5%, which brings annual inflation over the past 12 months to 5%. The April CPI monthly reading is the highest since July 2022.

In April, increases were seen in the cost of fresh vegetables and fruits, which rose 4%, transportation was up 2.5%, clothing and footwear costs were up 1.9%, and culture and entertainment costs increased 1.8%. Foreign travel costs jumped by 8.8%. These were offset by declines in house maintenance costs, which were down 0.5%, and furniture and home equipment costs, which slipped 0.2%, according to the statistics bureau.

Home prices remained unchanged in April, after prices declined by 0.1% last month. The annual growth rate of housing prices continued to moderate to about 11% from 12.8%. That is after housing prices soared almost 20% in 2022. Meanwhile, rents on renewal of contracts jumped 3.6% in April and rents on contracts for new tenants soared 9%.

“In recent weeks, there is a continued news stream about price increases in the retail segment, led by price hikes of milk products and reports of increases in the prices of dry products,” said Yonnie Fanning, chief strategist at Mizrahi Tefahot Bank. “The high interest rate environment in the local economy, and the fact that we are a small and dense country, with solid population growth rate, creates a somewhat unique situation, in the way that they are expected to continue to push up rental prices in the near future.”

Food manufacturer Strauss said Monday it was raising prices of some products next month, half a year after a hike on a range of other items. The price hikes will be as high as 6% on some items, but will average 1.4%. The new costs will go into effect on June 4.

Carrefour Israel vows to sell products at lower prices than local competitors. (Courtesy)

In early May, it was announced that regulated dairy products would see a rise of over 9% as part of an expected 16% total increase across three years. Dairy giant Tnuva also raised the prices of its unregulated products by an average of 4.65%, with some products set to increase by over 9%, mainly due to the increase in the price of raw milk.

The Bank of Israel has steadily raised its benchmark interest rate from a record low of 0.1% in April 2022 to 4.5% in April this year, in a bid to rein in inflation, which has been hovering above 5% in annual terms for more than six months, falling short of the government’s target range of 1% to 3%. The Bank of Israel’s monetary policy committee will announce its decision on the next interest rate move on May 22.

Before the release of today’s CPI figures and ahead of Tuesday’s release of economic growth data for the first quarter, the Israeli market was pricing in a 65-70% probability for another interest rate increase next week, according to Bank Hapoalim.

Following April’s high inflation figure, economists at Bank Leumi and Psagot Investment house now expect the Bank of Israel to hike borrowing costs by at least 25 basis points to 4.75% next week.

Bank Leumi chief economist Gil Bufman projects that the Bank of Israel will raise interest rates at its upcoming decision to 4.75% or 5%.

The central bank is not expected to begin reducing borrowing costs in the foreseeable future, according to Bufman.