Household Personal Inflation: How does Residential Area Affect it?

21/05/2015 |  Ribon Sigal
All Press Releases In Subject:
Monetary Policy and Inflation

The Consumer Price Index reflects the change in the price of an average household’s consumption basket. However, there is considerable variance in the composition of the actual basket among different households, so it can be expected that they experience different rates of inflation. This paper presents a calculation of a personal inflation rate for each household, based on the structure of its expenditures and on the changes in prices as they are measured in the CPI. Here, in contrast with many other studies, the change in housing (rent) expenses is adjusted for the area in which the household resides. It was found that there is wide variance in the rate of price changes of consumption baskets among different households, but there is no strong persistence over time in the relative inflation for a large part of the population groups. It was found that in 2008–10, the rate of price increases was greater for households in the bottom to middle income quintiles, for households in the over-65 year old age group and for single-individual households. Due to the rapid increase in rent prices in these years, the rate of price increase was higher for those residing in Tel Aviv, Gush Dan, or the Center. Over the course of the period studied (2003–12), there was a gap of approximately 4 percentage points in cumulative inflation between different regions and between over-65 year old households and others.
* I wish to thank Akiva Offenbacher and the participants of the Bank of Israel Research Department seminar for their useful comments and suggestions.



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