The consumer price index is one of the most important indices of the Central Bureau of Statistics (CBS), and it affects hundreds of billions in contracts, payments, allowances and taxes. It is designed to reflect the average level of prices in the economy, something that becomes especially critical in periods when inflation is rising.
The index is also important to the Bank of Israel, when it comes to determining the level of interest that affects the entire economy, when particularly high inflation is supposed to be responded to by raising the interest rate in order to “cool down” the market and reduce demand.
The consumer price index is calculated on the basis of the annual survey of the Central Bank – the household expenditure and income survey, through which the nature of consumption in Israel is assessed. For example, 24.7% of the index consists of the housing category and 18.4% is the prices of communication.
The effect of housing prices on the index
Housing prices are the largest part of the index’s branches, and their price increase was particularly noticeable in the last decade and affected every Israeli man and woman. The housing prices are not derived from the prices of the apartments themselves as in the past, but from the rental prices that could be obtained for similar apartments.
This situation is particularly problematic due to the fact that there is no rent registrar in Israel and most transactions in the field are not reported or are done in cash. Also, there is no tax obligation on rent below NIS 5,196 per month. This situation forced the CBS to make a number of changes, including tracking the same apartment through different tenants.
Following these and other complexities, the CBS began to publish separately the prices of ongoing contracts (the price of which does not change), the prices of new contracts (with a new tenant) and renewals (a new contract with the same tenant).
A significant part of the products in the index has a seasonal effect, such as the prices of clothing and footwear, which decrease in the month of July, when prices are usually discounted.
Another point is that households have different consumption, some of which are examined within the index. For example, in the lower quintile (the poorer citizens) the consumer price index rose this year by 4.6%, compared to 5.6% in the upper quintile (the wealthier).
It is possible to make further divisions in the population such as the elderly in Israel whose nature of consumption is different, but at this stage there is no such official index.