Inflation in line with expectations as rental prices accelerate

ISRAEL - In Brief 17 Jul 2022 by Jonathan Katz

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Inflation: June’s CPI was in line with consensus  * Inflation increased by 0.4% and by 4.4% y/y (up from 4.1% in May).  * Core inflation accelerated to 4.1% from 3.65%, as housing rental prices (OER) increased by 4.1% y/y from 3.4%.  * Inflation is more broad-based, and more concentrated in prices of services.   * Inflation is expected to accelerate to 5% y/y towards end year on higher food, rental and travel abroad prices.  * Our forecast for inflation in the next 12 months is currently 2.8%. Monetary policy: We expect the Bank of Israel to continue to tighten fairly aggressively, by 0.5% in each of the next two rate decision (August and October). Rates are expected to reach 2.75% by early 2023 and stabilize at this level as inflation gradually decelerates back into the target range. Recent economic indicators suggest steady growth:  * Trade data point to expansion of both imports and exports.  * Consumer imports are up 15% saar in the second quarter of 2022.  * Manufacturing exports surged by 44% on strong pharma exports.  * On the other hand, consumer confidence declined sharply, likely due to financial asset erosion, inflation woes, and early elections.  * April-May, new home sales declined by 25% compared to the average level of 2021 (a record year), but are still 5% above the level in 2020. FX: Last week the shekel appreciated by 0.4% against the basket of currencies and by 2.6% since the beginning of the month.According to IVC data, in the second quarter hi-tech companies raised $ 4.1 billion abroad, although this is much lower than the high levels of 2021, but this amount is considered very high compared to 2019.Bonds: In May, foreigners increased their holding...