A 0.75% rate hike today appears slightly more probable

ISRAEL - In Brief 02 Oct 2022 by Jonathan Katz

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Today’s rate decision will surely be a rate hike, the question is whether 0.5% or 0.75%. What will support a more moderate rate hike of 0.5%? *  The last CPI print came in below expectations, reaching -0.3% m/m compared to expectations of -0.1% to -0.2%. Food prices came in below expectations (-0.1% m/m). *  Core inflation stabilized in August at 4.7% y/y similar to the rate last month, and core inflation excluding government intervention stabilized at 4.4% (similar to last month). Granted, this is still way above target, but the stability in the annual rate following a clear upward trend this year, is encouraging. In most DM countries, core inflation continues to accelerate.  * Recent economic indicators have been mixed, but the BoI has noted some softening of growth in the 3rd quarter with the Composite Index flat in July-August. Manufacturing, revenues, and trade appear to be slowing. Credit card purchases remain stable during June-August in real terms following growth of 2.9% in the previous three months. On the other hand, the Business Tendency Survey in August suggests steady growth and expectations for growth in the next three months moving higher (September’s survey will be released on Thursday).  * Wage growth has accelerated but is mostly concentrated in the hi-tech sectors. What will support a 0.75% rate hike?  *  The major central banks are tightening aggressively (frontloading). Governor Yaron appears greatly influenced by the global monetary policy in general, and by policy of the Fed especially. The turmoil in Great Britain and BoE reaction will further support his hawkish position.  *  All four rate hikes so far have surprised on the upside (or have bee...