Israel’s inflation accelerated to 5.3% in November, led by surge in housing costs

Israeli inflation accelerated to 5.3 percent in November over the previous 12 months, hitting a new 14-year high and putting further pressure on the Bank of Israel to hike interest rates again next month.

The consumer price index (CPI), a measure of inflation that tracks the average cost of household goods, rose by 0.1% in November in line with analysts’ expectations, bringing annual inflation over the past 12 months to 5.3% up from 5.1% in October. The annual CPI is the highest since inflation hit 5.5% in October 2008; it previously hit a 14-year high of 5.2% in July.

The fast increases were seen in the cost of housing, which went up 0.6%; rental prices, up 8.1%; apartment maintenance, up 0.3%; and food up 0.2%, which were offset by declines in prices of fresh fruit and vegetables, down 4.3%, and footwear, down 1.5%, according to the Central Bureau of Statistics. Since the start of the year, the CPI rose 5%, the statistics bureau said.

With that, inflation in Israel remains significantly lower than in most developed countries. In the US, consumer prices rose 7.1% in November from a year ago, according to government figures released on Tuesday, dropping from 7.7% in October and a peak of 9.1% in June. Annual inflation in the 19 countries that use the euro currency was at 10% in November, easing from 10.6% in October, the first decrease since June 2021.

In another attempt to tame rising inflation and bring the rate back within the government’s 1% to 3% annual target range, the Bank of Israel last month raised the benchmark interest rate by 50 basis points from 2.75% to 3.25%. The hike marked the central bank’s sixth move of monetary tightening since April, when policymakers had started raising the rate from an all-time low of 0.1%, where it had remained for more than a year and throughout the COVID-19 pandemic.

The Bank of Israel’s monetary policy committee will announce its next interest rate decision on Jan. 2 and present macroeconomic forecasts. In October, Bank of Israel researchers forecast economic growth of 6% for 2022 and 3% for 2023, and the annual inflation rate to ease to 4.6% this year and 2.5% next year.

According to the Bank of Israel’s estimates and forecasters from the capital market, inflation is expected to begin declining at the end of the first quarter of 2023, then return to the middle of the target range in the summer.

Ahead of today’s CBS figures, Bank Hapoalim chief strategist Modi Shafrir forecast for the November CPI to remain unchanged, while the average of forecasters projected an increase of 0.1%. Going forward, Bank Hapoalim expects December inflation to climb 0.25% before starting to gradually decline next year. Shafrir sees consumer prices moderating to 2.7% in the next 12 months, matching the Finance Ministry’s 2.7% inflation rate forecast for the end of 2023.

“The increase in inflation year-on-year to its highest level since 2008, and the continuation of a sharp upward trend in apartment prices (increased by another 1.2% in the last month), raise the probability that the Bank of Israel will raise the interest rate at the next meeting by 50 basis points (above market expectations before publication the index),” Shafrir wrote in a note following the CPI data.

“We believe that there is a 50:50 probability of an interest rate hike of 50 basis points or 25 basis points at the upcoming meeting of the monetary committee, and that borrowing costs will come to a peak at rate of 3.75% to 4%,” he remarked.

Earlier this week, the Finance Ministry cut its 2023 growth outlook for Israel’s economy to 3% from 3.5% previously, citing a contraction in consumer spending and a slowdown in the global economy. This year, the economy is projected to have grown at a rate of 6.3%, according to the ministry’s estimates, following its even faster expansion of 8.1% in 2021, the recovery year from the COVID-19 pandemic.

AP contributed to this report.