More Weight to Be Given to Housing in Inflation Rate

Inflation is likely to grow in Israel in the coming months – not necessarily due to a wave of price increases, but because of a new classification scheme, in which the cost of housing as part of the rate of inflation will receive increased focus and attention. The change comes as a result of the Central Bureau of Statistics increasing the housing component of the official inflation rate to 24.9 percent of the total “basket” of expenses of an average Israeli household.

The official inflation rate is the result of the computation of dozens of different price points and how they rise and fall over time. The rate is determined by taking the average price change of these prices points and factoring them into a single number, based on the importance of the factor to households.

The role of housing as a portion of household expenses has been growing in recent years, as prices for home purchase and rent have risen. In large cities, middle income residents must spend as much as 40 percent of their income on mortgage or rent payment – emphasizing the growing costs of housing to household budgets. As a result, the inflation rate is being recalculated, with housing now accounting for nearly a quarter of the measure of price fluctuations.

As housing costs have been rising about 8 percent a year on average in recent years, the inflation rate is likely to tick up. Many unionized workers are eligible for automatic salary increases if inflation goes beyond a certain point, but although the rate may tick up, it is not expected to trigger those increases, officials said.

The new formula for determining the inflation rate will consist of housing (24.9 percent of the rate), transportation and communication (19.3 percent), food (13.7 percent), education, culture, and entertainment (11.8 percent), housing expenses other than rent or mortgage payments (9.3 percent) and health care (5.8 percent).

According to Central Bureau of Statistics numbers, the average Israeli family has an income of NIS 18,636 a month, and pays NIS 3,212 in taxes of all types. The net income for families is NIS 15,424, the CBS said.