Inflation in December surprises on the downside

ISRAEL - In Brief 15 Jan 2024 by Jonathan Katz
Inflation in December surprises on the downside Inflation declined by 0.1% m/m and moderated to 3.0% y/y from 3.3% last month (expectations were for 3.1% y/y). Core inflation moderate to 2.7% y/y from 2.9%. Seasonally adjusted CPI in the past three months slowed to an annual rate of 1.5% from 2.3% last month. The items which surprised us include food which remain stable (we had expected a slight increase), domestic vacations declined more sharply than expected as did car insurance. Looking at the major categories: core goods slowed to 0.1% y/y from 0.3%, rental prices slowed to 3.1% from 3.6% and non-rental services to 3.8% from 4.2%. The PPI (excluding fuel) declined by 0.3% and is up 1.1% y/y (1.0% last month). Housing purchase prices (not factored into the CPI) decline by 1.8% y/y (-1.2% last month). Implications for monetary policy: The sharp moderation in inflation in Q423 is due to the immediate decelerating impact from the war from the demand side (and “solidarity”). Although this impact could continue in coming months; looking ahead there are inflationary risks from the spike in shipping costs, recent shekel weakness, an expansionary fiscal policy and even “pent-up” demand when the hostilities dissipate. We will most likely see a rate pause on February 26th.

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