Workers || The Consumer Price Index for January 2021 decreased by 0.1%

The Consumer Price Index for January 2021 decreased by 0.1% to a level of 99.7 points. In January, a new base was updated for the index according to a new weight system and in relation to a new base period (average 2020 = 100). In the last twelve months, the index has fallen by 0.4%, and the index excluding energy has risen by 0.1%.

Fruit and vegetable prices fell by 2.7%, clothing and footwear prices fell sharply by 9.7%, and electricity prices fell by 2.8%. On the other hand, water prices rose by 6.5%, residential property taxes rose by 1.0% and car prices rose by 1.4%, following the increase in taxation on hybrid vehicles and the increase in transport prices.

The section on owner-occupied housing services increased by 0.4% and in the past year increased by 1.2%.

Dwelling prices, which are not weighted in the consumer price index, rose in the latest survey by 0.9% (temporary data). In the past year, apartment prices have risen by 4.0%.

Consumer Price Index Forecast

The price index for January fell by 0.1%. Relative to the seasonality of this month, the index was very high. The surprise was mainly in the housing section which corrected from an annual decline of 0.2% in the previous month to an annual increase of 0.5%. Further increases have occurred in the prices of food and furniture and household equipment.
Inflation expectations are on the rise worldwide and these have been affected by rising commodity, freight and oil prices. We raised the inflation forecast for the coming year to 0.9% following the rise in the price of oil ($ 63 per barrel of Brent). At this stage, price increases are more in the prices of goods, and we estimate that there will also be an increase in the prices of services with the opening of the economy.

Impact on monetary policy

Central banks will not react to rising inflation and that means more negative real interest rates. How central banks will be tolerant of higher inflation is difficult to know, as inflation targets have become very flexible. The Fed intends to compensate for the low inflation in the past with higher inflation than the target in the future, but if for example it intends to compensate for only one year of low inflation from the past, then already next year it can raise interest rates (less likely scenario at present). In any case, the Bank of Israel will not be the first to respond here, both because of the appreciation pressures and because our inflation is lower.