April's CPI surprises sharply on the upside as core inflation accelerates

ISRAEL - In Brief 15 May 2023 by Jonathan Katz

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April’s CPI surprises sharply on the upside Inflation in April reached 0.8% m/m, double the consensus expectation of 0.4%. The annual rate remained stable at 5.0%, while core inflation (the CPI excluding energy and fresh produce) accelerated to 5.26% m/m from 5.10% last month. Two items surprised significantly on the upside: housing (rental prices) accelerated to 7.2% m/m from 6.7% last month (after slowing from 6.8% in February); and travel abroad costs increased by 8.8% m/m and by 21.3% y/y, accelerating from 19.5%. This monthly increase is above the usual seasonality (in FX terms). In addition, food prices increased slightly above expectations (0.4% m/m), despite the downward pressure on prices during the Passover holiday. Recent price hikes in dairy products and soft drinks will continue to contribute to inflation in coming months. The PPI excluding fuel slowed to 2.8% y/y from 3.0% last month. Housing purchase prices (as separate survey not factored into the CPI) continued to moderate, remaining stable in the last survey, and decelerating to 11.0% y/y from 12.8% and 20% in November 2022. Implications for monetary policy: Clearly, we currently expect a 0.25% rate hike next week to a level of 4.75%. The probability of a 0.5% hike appears miniscule. The last piece in the monetary decision puzzle will be tomorrow’s Q123 GDP print (we expect 1.8% saar).