Inflation in March comes in slightly on the upside

ISRAEL - In Brief 14 Apr 2020 by Jonathan Katz

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Inflation in March reached 0.4% m/m and zero 0.0% y/y (from 0.1% in February). Market expectations (and ours as well) were at 0.3% m/m. The upward surprise came from the housing rental item, which actually accelerated slightly to 2.3% y/y (from 2.2%, we had expected a moderation to 1.7%). This the main category (17.2% of the CPI basket) within the housing item (24.1% of the CPI), which measures rental contract renewals once a year. We had mentioned previously that this item is highly volatile, and our guess it that most rental renewals were done at the beginning of the month, before the corona crisis deteriorated. We think this item will correct sharply downwards in April and May as demand declines sharply (on spiking unemployment and some lower wages) and supply increases (Airbnb rentals shifting to long term rentals). For this reason, we expect inflation in April to reach -0.6% m/m (lower petrol prices as well of course) and -0.4% one year from now. Housing purchase prices (a separate survey not factored into the CPI were up 0.6% m/m and 3.9% y/y from 4.2% last month. We note that this is a survey of the average housing prices sold in February-March (two-month average) and therefore this lag explains some upward inertia in housing prices. Clearly, housing purchase prices will see some downward pressure in the coming year.