Inflation continues to move lower

ISRAEL - In Brief 14 Feb 2020 by Jonathan Katz

---

January's CPI declined to 0.3% y/y (-0.4% m/m), slowing from 0.6% y/y in December. Inflation came in at the low end of consensus (according to Bloomberg, the market was expecting -0.3% m/m). Core inflation (the CPI excluding all energy items and fresh produce) moderated as well, reaching 0.35% y/y in January following 0.61% in December. We note that eight out of the ten major CPI categories were negative m/m in January (six are zero or negative y/y), a strong indication of how low the inflationary environment is. Basically, the only major item contributing to inflation is housing (rental) prices, up 2.2% (the major category) contributing 0.5% to inflation. The PPI excluding energy is down 0.8% y/y as well. Housing purchase prices (a separate survey, not factored into the CPI) moderated slightly in the last survey, up 3.0% y/y following 3.1% in the previous month. Inflation y/y is expected to decline further in February and March, most likely reaching zero y/y by the end of Q120. Low inflation in Q120 is due in part to the steady shekel appreciation (1.3% against the basket in January, continuing into February), as well as the sharp decline in global energy prices due to the coronavirus. This low inflationary environment could put pressure on the Bank of Israel to lower rates, especially if the impact of the coronavirus persists and other central banks expand monetary policy as well.