Downward inflation surprise in September reduces chances of tightening in the near future

ISRAEL - In Brief 15 Oct 2024 by Jonathan Katz

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September’s inflation print (-0.2% m/m 3.5% y/y moderating from 3.6%) came in below market expectations of no change (0,0%, ours as well). Core inflation moderated as well to 3.0% y/y from 3.1%. Housing rental price (OER) accelerated slightly to 2.8% y/y from 2.6%. The big surprise came from airfare (1.7% of the basket) which declined by 16.7% m/m following a 22.1% spike in August. Despite a new methodology in this item of measuring actual airfare tickets purchased in three time periods (t-1, t-4, t-7 months), the seasonality appears to be more volatile. October will most likely witness a spike in airfare, due both to the seasonality of the Jewish holidays and flight cancellations but foreign carriers due to the escalation. Non-housing services slowed to 3.8% y/y from 4.0% y/y. The PPI excluding fuel increased by 1.8% y/y from 1.6% last in August. Housing purchase prices (a separate survey not factored into the CPI) increased by 0.3% m/m below the average monthly pace of 0.8% YTD, but the last three surveys are only provisional data. The annual pace accelerated to 6.3% y/y from 5.7%. Implication for monetary policy: This soft inflation print and moderation y/y will be good news for the BoI and certainly reduce the likelihood of a rate hike in the coming months. Deputy Governor Abir said that they will be watching Sept-Oct inflation prints carefully. We still expect inflation to accelerate in the coming year due to higher rental prices, a tight labor market and most likely a fairly expansionary fiscal policy. Nevertheless, the call for rate stability certainly appears stronger at the moment.