Inflation remains low, rental prices moderate

ISRAEL - In Brief 20 Dec 2020 by Jonathan Katz

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Highlights of weekly macro review:November’s CPI (-0.2% m/m) was in line with expectations Headline inflation (-0.6% y/y) and core inflation (-0.2% y/y) reflect a low inflationary environment, mostly due to a steady shekel appreciation.Rental (equivalent) prices moderated to 1.1% y/y from 1.7% last month.The PPI (excluding fuel) remains negative: -1.3% y/y.We expect inflation to reach 0.4% in the next 12 months (and in 2021), assuming further shekel appreciation, higher commodity prices, and some acceleration in housing rental prices. Our forecast assumes a 2.8% decline in electricity prices in January. We have yet to include a possible 40% decline in Bezeq landline phone costs (under appeal) which could shave off 0.1% inflation.The CA surplus increased to 6.4bn USD in Q320 from 5.1bn inQ220 due to a lower trade deficit, supported by lower imports and export growth.New home sales in October increased by 4.9% m/m and 39% y/y as buyers are taking advantage of low rates, and the lowering to the tax rate for investors from 8% to 5%.In Q320, residential starts increased by 6% q/q, from low Q2 levels.Credit card purchases are up 5.7% in the first half of Dec (above Nov.)Q320 GDP was revised up, only down 1.1% y/y (previously -1.4%).The PMI increased by 2.2 points in Nov to 57.1, with both export and domestic orders up. Economic indicators have been positive FX: Last week, the Shekel appreciated by 0.4% against the dollar and weakened by 0.7% against the Euro. The shekel weakened by 0.2% against the basket of currencies (-4.5% YTD). Monetary policy: The last rate decision was 5 to 1 (with one MPC member voting to lower rates to zero). The MPC (and Governor) are satisfied with...