Inflation continues to surprise on the upside

ISRAEL - In Brief 15 Mar 2023 by Jonathan Katz
Inflation continues to surprise on the upside February’s CPI came in at 0.5% m/m (expectations were for 0.3%) and 5.2% y/y (down slightly from 5.4% last month). Core inflation remained stable at 5.1% y/y. Several service items surprised on the upside such as domestic vacations (3.5% m/m) and house cleaning (4.9%). Travel abroad increased by 2% due to the weaker shekel. Housing rental prices (OER) accelerated to 6.8% from 6.7%. non-housing services accelerated to 5.7% y/y from 5.6% y/y. Prices of goods moderated to 2.7% y/y from 3.3% with the PPI (excluding fuel) moderating to 3.6% y/y from 4.7%. Housing purchase prices (a separate survey not factored into the CPI) was up 0.1% in the last survey, but slowed to 14.6% y/y from 16.8%. In light of this “sticky inflation”, at the point we expect a 0.5% rate hike on April 3rd. We think this is regardless of what the Fed does next week, as the BoI has a major mandate of price stability and is still far from reaching target. In addition, recent shekel weakness will contribute to inflation in coming months, further supportive of a more hawkish hike than 0.25%.

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