February rate cut cannot be ruled out

ISRAEL - In Brief 04 Feb 2024 by Jonathan Katz

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Private consumption continues to rebound, but slows in January: December witnessed a 12% m/m jump in credit card purchases following 8% increase in November, erasing the 16% contraction in October. Real-time data from the BoI reflect a further 4% increase in January, with a slowdown in the second half of the month, most likely due in part to harsh weather conditions. Chain store sales increased by 7.6% m/m (sa) in December and are 7.8% above pre-war levels, in part due to fewer Israelis traveling abroad. Average nominal wages are up by 10.6% y/y, due to the sharp decline of 5.7% in employee posts (mostly lower income workers); due to impact of the war on employment. FX: The shekel appreciated last week by 1.5% against the basket of currencies, partially due to optimism regarding an imminent ceasefire. The BoI reported that in Q423 Israeli institutions were net purchasers of 5.3bn USD, the Israeli private sector purchased 5.2bn, while the BoI sold 8.5bn and foreigners sold 3.8bn. Inflation: We maintain our inflation forecast of 2.6% this year. Petrol prices increased by 2.2% in February, electricity prices by 2.6%. Several major food producers announced price hikes in February. Global shipping costs (Drewry) declined by 4% last week and by 8% from Asia to the Mediterranean. We note that only 27% of total merchandise imports come from Asia (mostly vehicles). Policy rates: We cannot rule out a rate cut on February 26th (40% probability according to the markets), despite a more hawkish Fed message. We note that inflation is expected to decline to 2.7% y/y in January (from 3.0%), the shekel has appreciated and the Governor appears cautiously optimistic regarding the fiscal ...