Prices Deflate 0.3% in January, as Trend Continues

The newest scourge of economists, deflation, hit Israel in a big way in January. In a trend that began in 2014, prices sank in Israel 0.9% in January, the Bank of Israel said Sunday, a greater fall than the 0.7% economists had expected. In addition, the Bank announced, prices for all of 2014 were down 0.2%.

According to statistics, the sharpest drops in prices were in the areas of gas and oil products, with prices falling 8.8%. Prices for water were also lower, by 8.9%. Hotel stay costs slipped 6.6%, while clothing costs were down 6.7%. Even housing costs were down, 1.2% lower than the month before.

Some prices were higher; imported cigarettes were 1.3% higher than in December 2014 as a new excise tax came into effect. Vegetables experienced a seasonal increase of 4.2%. And medical services were 0.9% higher than a month before as well.

While deflation is of great concern to economists because it testifies to a shrinking of economic activity, which could lead to a recession, loss of jobs, and other negative consequences. However, in Israel's case, most of the cause of the deflation involved lower gas prices, which are set by the government in accordance with the import price of petroleum, and a one-time reduction in water costs.

The February cost of living rate is expected to fall significantly as well, as a one time 10% cut in the price of electricity comes into effect.

Over the past year, prices fell at an annualized rate of 0.5%, or 1.6%% without inclusion of housing and vegetables.  

Source: http://www.israelnationalnews.com/News/News.aspx/191377

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