A rate cut this month cannot be ruled out

ISRAEL - In Brief 15 Feb 2024 by Jonathan Katz

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Another low CPI print in January Inflation in January was stable (0.0% m/m) and slowed to 2.6% y/y from 3.0% in December. This index came in at the low end of expectations (0.0%-0.1%). Core inflation (the CPI excluding energy and fresh produce) slowed to 2.4% y/y from 2.7%. Prices of core goods turned negative annually: -0.3% y/y from +0.1% y/y in December as prices of vehicles declined in January (used cars especially by 0.4%) and food prices moderated. Rental prices (OER) slowed only modestly to 3.0% y/y from 3.1% and other service prices slowed to 3.7% from 3.8%. Travel abroad costs declined surprisingly by 3.4% y/y (we had expected an increase of 3.4%), despite the lack of carriers flying to Israel reducing competition significantly and supposedly pushing up prices of airfare. The PPI (excluding fuel) was up 1.4% y/y (1.1% last month). Housing (purchase) prices, a separate survey not factored in the CPI were up 0.7% in the last survey and down 1.4% y/y (following -2.0% y/y in the previous month). We note that the last three surveys are temporary and are often revised significantly. Our analysis and implication for rates: Inflation in January came in at the low end of expectations, and moderated significantly on an annual basis (Core as well). Granted, we had expected rental prices to moderate more rapidly, and flights abroad to go up. But the end result is the same: Inflation has surprised (again) on the downside and it clearly has entered the target range of 1% to 3%, as have inflation expectations. This is the overriding factor in the rate decision, despite concern regarding shipping costs and other supply shocks. The shekel has appreciated back towards 3.62/USD ...