Core inflation accelerates with higher service inflation

ISRAEL - In Brief 18 Dec 2022 by Jonathan Katz

---

19.12.22 Core inflation accelerates to 5.3% Inflation in November was in line with expectations but the underlying trends remain worrisome. Core inflation accelerated to 5.3% y/y from 5.0% in October, with rental prices (OER) up 5.9% from 5.6%. Other services also accelerated. Housing purchase prices also accelerated to 20.3% y/y from 19.8%, despite the 60% y/y decline in new home purchases. We expect inflation to slow to 2.9% in the next 12 months as housing rental prices moderate and economic growth slows. The goods/services surplus declines Although the total current account surplus improved to 5.4bn USD in Q3 from 4.9bn in Q2, the more important goods and service surplus contracted by 0.6bn. The trade (goods) deficit increased by 1.5bn while the service account surplus increased by 0.9bn. Q3 witnessed strong transfer payments from the US government boosting the current account surplus. FDI remained strong with non-foreigners investing 6.4bn in Q3 following 7.1bn in Q2. This is likely to slow going forward on a softening of investments in the hi-tech sector. In short, macro fundamentals remain shekel positive, but less so than in the past. In the short run, the shekel will react more to equity market movement rather than the current account. Trade numbers point to strong economic activity in recent months, with manufacturing exports robust and imports of consumer goods expanding. The second Q322 GDP growth estimate was revised down to 1.9% from 2.1% with downward revisions of most uses, including exports, PC and investments. This is “old news” and is not likely to impact monetary decisions. Monetary policy: Although this CPI print was in line with expectations, the ...