Despite low CPI print, a rate cut is far from certain

ISRAEL - In Brief 16 Dec 2019 by Jonathan Katz
November's CPI surprises on the low side Inflation in November reached -0.4% m/m (0.3% y/y), lower than our forecast of -0.3% m/m and market expectations of -0.2% to -0.3%. Core inflation (the CPI excluding energy and fresh produce) remained stable at 0.5% y/y similar to last month, but clearly trending lower in recent months (see graph). The main surprise in November's CPI came from clothing prices which declined by 1.1% m/m (contrary to the seasonal hike of +2%). This could be due to the unusually warm weather we had this month and the sharp impact of Black Friday sales (more so than in the past). If so, prices will correct upwards in December. Although this low inflation print will support the doves in the MPC, we still do not think a rate cut is likely (but we cannot rule this out). The Bank of Israel has stated that at the moment they prefer to use FX intervention and not lower rates, with economic growth fairly strong, the labor market tight, and other central banks on pause. In addition, housing (purchase) prices, a separate survey not factored into the CPI, increased by 0.6% m/m and by 2.6% y/y (up from 1.7% last month), pointing to some asset price inflation.

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