Low inflation print reduces the likelihood of tightening in coming months

ISRAEL - In Brief 20 Oct 2024 by Jonathan Katz

---

Geopolitics: The death of Sinwar, the Hamas leader, was greeted with some cautious optimism regarding a possible cease-fire. Israel continues its ground offensive in Northern Gaza and into Southern Lebanon. Missiles and drones from Hezbollah continue to be fired into Israel at a high intensity causing damage and casualties, as Israel continues to strike deep into Lebanon. A cease-fire appears unlikely in the short run, and an Israeli strike on Iran appears imminent. September’s CPI comes in below expectations Inflation (-0.2% m/m) moderated to 3.5% y/y from 3.6% mostly due to a sharper-than-usual seasonal decline in flights abroad. This moderation is expected to be temporary, accelerating in October. We expect inflation to remain sticky reaching 3.1% NTM. Monetary policy: The likelihood of a rate hike has declined, at least in the short term. Nevertheless, rate reduction in the coming year appears unlikely. FX: The shekel appreciated by 1.4% m/m against the basket of currencies following the Sinwar assassination. Escalation in the incoming missile attacks and doubts regarding the likelihood of an imminent cease-fire could reverse this trend. • Israeli institutions were net purchasers of FX in Aug, buying 6.3 bn USD increasing their exposure to 23.6% (on average) from 23.4%. • Foreigners increase their holdings of Israel domestic bonds, making up 9.3% of the outstanding stock in August compared to 8.4% in July. Trade data point to expansion of both exports and imports Exports of goods increased by 9% q/q in Q3, mostly defense, pharma, and chemicals. Both consumer imports and raw materials expanded as well. The PMI declined by 2.5 points to 51.0, still reflecting moderat...