Inflation pushes higher

ISRAEL - In Brief 16 Aug 2024 by Jonathan Katz

---

Inflation comes in at the high end of expectations The CPI in July was up 0.6% m/m (expectations 0.4%-0.6%), in line with our forecast. Inflation y/y increased to 3.2% from 2.9% last month. Core inflation pushed higher as well to 2.8% y/y from 2.5%, and core inflation excluding government measures (such as the sharp cigarette tax spike in March) was up to 2.5% from 2.25%. The shelter component was up 0.8% (3.1% y/y, up from 2.9% last month), and excluding shelter, service prices accelerated to 3.9% from 3.2%. core goods inflation reached 1.7% y/y from 1.3%. Higher water and public transportation prices had a modest impact on inflation in July (but are stripped out of core inflation). July is a seasonally high CPI due to higher vacation costs, but we are seeing an acceleration in inflation y/y as well. This is being impacted by a tight labor market (job vacancies pushed higher in July, up 20% compared to pre-war), rapid wage growth (of 6%-7%), and an expansionary fiscal policy (and not only spending for the war effort). We will update our inflation forecast in the upcoming weekly macro review. The supply/demand dynamics in the housing market support higher prices as well (including rentals). Housing purchase prices (not factored into the CPI) were up 0.7% y/y in the last survey, 5.3% y/y and 6.0% YTD. Demand for housing is relatively strong, in part due to anticipation of lack of supply due to the slowdown in construction (due to lack of Palestinian workers). Evacuees from the North are relocating in the center of the country as well. Implications for monetary policy: One could argue that core inflation (and core excluding government measures) is still within target and...