Inflation continues to moderate, rate cut in April far from certain

ISRAEL - In Brief 15 Mar 2024 by Jonathan Katz

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Inflation continues to moderate, but the devil is in the details Inflation in February (0.4% m/m, 2.5% y/y down from 2.6% in January) was in line with expectations (or a bit at the high end, we were expecting 0.3%). Core inflation (headline excluding energy and fresh produce) moderated to 2.2% y/y from 2.4% last month. Inflation in the last three months (seasonality adjusted) came in at 1.5% saar, up from 1.1% last month but still at the low end of target. The detailed CPI revealed two opposite trends: Housing rental prices (OER) moderated sharply down to 2.0% y/y from 3.0% last month. This downward surprise (we had expected a more moderate 2.6% print) offset higher-than-expected inflation in certain items such as: furniture and home appliances (0.7% m/m, maybe some higher shipping costs had an impact), events and parties (up 1.8%), and a moderate decline compared to the seasonal decline in apparel prices. Service prices (non-rentals) moderated slightly down to 3.6% y/y from 3.7% last month, while prices of core goods accelerated to +0.3% y/y from -0.3%. We note that the rental price item measures rental contracts effective in the past two months, most likely following negotiations 1-2 months previously. Therefore, we doubt this sharp downward trend is what we will see in coming months. The BoI noted this in their “inflation risks”: The Committee’s assessment is that there are still a number of risks of a potential acceleration in inflation: the effects of the war and its progress on economic activity, the constraints on activity in the construction industry (our bold), a depreciation of the shekel, and fiscal behavior.” We should see the impact of lower housing supply...