Inflation remains sticky and broad based

ISRAEL - In Brief 19 Mar 2023 by Jonathan Katz

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Inflation surprises on the upside February’s CPI increased by 0.5% m/m compared to expectations for 0.3%. Core inflation remains stable year-on-year at 5.1%. Both housing rental (6.8% y/y) and non-housing services (5.7%) accelerated. 75.6% of all CPI items are up more than 3% y/y compared to 72.8% last month. Inflation expected to reach 3.1% NTM A weaker shekel remains the major inflationary threat on the back of political uncertainty regarding the implications of the judicial measures on capital flows. In January, Israeli savings institutions increased their assets abroad as well as their FX exposure. They were net FX purchasers of 4.5bn USD. Other macro factors support relatively low inflation: slowing growth and consumer demand, a modest public sector wage agreement and weaker wage pressure (see decline in job vacancies), expectations for slower rental prices and lower global commodity prices. Job vacancies declined to 136.3k in February from 138.4k in January and 150.2k in August. Politics: Massive demonstrations continued nationally on Saturday evening with a reported 200k participants in Tel Aviv and more than 250k nationally. President Hertzog proposed compromise on the judicial reform (which maintained the judicial appointment committee without a majority of politicians) was turned down by the coalition. As of Sunday evening, the coalition was discussing among themselves a possible softening of the original judicial measures proposed. FX: Last week, the shekel weakened by 2.5% against the basket of currencies as the window of opportunity for a compromise on the judicial measures appears to be closing. Monetary policy: The next rate decision (3rd April) is two w...