Inflation surprises slightly on the downside

ISRAEL - In Brief 14 Apr 2023 by Jonathan Katz

---

Signs of inflation moderation Inflation in March surprised slightly on the downside, up 0.4% m/m (consensus was 0.5%, as was mine) and moderated to 5.0% y/y from 5.2% in February. Core inflation (CPI excluding energy and fresh produce) remained stable at 5.1% y/y. Housing rental prices (OER) moderated slightly to 6.7% y/y from 6.8%, and non-housing service prices to 5.4% y/y from 5.7%. Travel abroad costs were up 1.9% m/m on the back of the weaker shekel. We note that the broadness of the CPI declined slightly: 73.2% of all detailed CPI items were up over 3% y/y, down from 75.6% last month. The seasonality adjusted CPI in annual terms has declined in the last three months. The PPI (excluding fuel) moderated as well to 3.0% y/y from 3.6% in February. Housing purchase prices (a separate survey not factored into the CPI) declined by 0.2% m/m and moderated to 12.7% y/y from 14.7%. Most of the underlying factors influencing inflation have moderated recently; all except for the weaker shekel. Wage growth has decelerated (in the private sector), energy prices have stabilized (until recently), and demand for housing purchases has declined. A less vibrant hi-tech sector is also slowing rental prices. The joker in the pack remains the shekel – or more precisely the political developments surrounding the judicial overhaul. At the moment, this initiative has been placed on pause as negotiations continue, and this could drag on for some time, hopefully taking the wind out of the sails of the judicial overhaul; thereby avoiding the downside scenario of the BoI in which growth decelerates further, the shekel weakens and rates move higher than in their base case (4.75%).