Inflation in August surprises on the upside

ISRAEL - In Brief 15 Sep 2023 by Jonathan Katz

---

Inflation in August surprises on the upside The CPI in August was up 0.5% m/m (expectations were in the 0.3%-0.4% range) accelerating to 4.1% y/y from 3.3% in July due to a strong base effect. Core inflation (the CPI excluding energy and fresh produce) accelerated to 3.9% from 3.6%, and excluding government measures (taxes etc.), core inflation accelerated to 4.1% from 3.8%. The item which surprised us the most was “travel abroad” costs which increased by 6.3% m/m (20.9% y/y), while the shekel weakened by only 2% against the dollar and appreciated slightly against the Euro. Housing rental prices (OER) moderated only modestly to 6.1% y/y from 6.2% last month. Other service prices increased by 4.8% y/y, similar to last month. The PPI (excluding fuel) remained stable in August and is up 1.9% y/y (up from 0.7% last month). Housing purchase prices (a separate survey not factored into the CPI) moderated to 3.2% y/y from 4.8% last month, declining by 1.1% in the last three months (provisional data). Implications for monetary policy: We were leaning towards a rate hike on October 23rd previously, due to the continuous pressure for shekel depreciation, combined with fairly positive growth indicators (Business Sentiment Survey) and low unemployment. This latest CPI print strengthens our base call for a hike to 5.0%, but until October 23rd we will have another CPI print release and of course, the domestic developments regarding the judicial overhaul will continue to impact the shekel.