January’s CPI surprises on the upside

ISRAEL - In Brief 15 Feb 2023 by Jonathan Katz

January’s CPI surprises on the upside Inflation in January was up 0.3% and 5.4% y/y (accelerating from 5.3% last month). Market expectations (and ours) were for 0.1% m/m. Housing rental prices surprised on the upside, with OER accelerating to 6.7% from 6.3%. In addition, the seasonal decline in apparel prices was much lower than expected. Core inflation (the CPI excluding energy and fresh produce) increased by 0.2% and by 5.1% y/y, accelerating from 5.0% last month.  Implications for monetary policy: We currently expect a 0.5% rate hike on Monday due to the acceleration of inflation, both headline and core. We were leaning in that direction even before this CPI but currently this appears to be more probable. The recent shekel volatility and uncertainty regarding the impact of the proposed judicial reform on capital flows will provide an additional rationale for a 0.5% hike to 4.25%. In addition, the labor market remains tight with job vacancies moving higher in January to 142.7k from 142.0k in December. Further tightening in 2023 is a definite possibility as well, in part depending on the direction of the shekel.

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