Housing prices will now comprise a full quarter of the Consumer Price Index, giving their steep hike even more impact on nationwide inflation.
The Central Bureau of Statistics will make its biannual adjustment of the Consumer Price Index today, giving housing prices a 25% share instead of less than 21%.
Inflation in Israel was 2.7% in 2010, and is expected to increase even more this year. A full 41% of last year’s inflation was due to housing (rental) prices – and this large share has caused government statisticians to increase the weight of housing prices in its calculations of national inflation. Ironically, given the expected continued housing rise, not only will this increase housing's contribution to national inflation, it will also speed up inflation in general even more.
The Consumer Price Index is made up of several factors, including transportation and communication (21.1% until now), fruits and vegetables (3.6%), other food (14.8%), health (5.2%), home maintenance and equipment (14.4%), education and leisure (12.5%), clothing (3.2%), and “other” (4.5%).
Analysts explain that because housing prices have gone up so significantly – 4.9% in 2010, and 5.6% the year before - their weight in the
In view of the expected increased inflation in 2011, the Bank of Israel and its Governor Stanley Fischer will likely have to raise interest rates. The official rate is currently 2.25%, after having remained at 2% for the previous three months.