March’s CPI surprises on the downside

ISRAEL - In Brief 16 Apr 2022 by Jonathan Katz
March’s CPI surprises on the downside Inflation in March increased by 0.6% m/m (expectations were for 0.8%, ours as well) and by 3.5% y/y (similar to last month). Core inflation (excluding energy and fresh produce) increased by 3% y/y (similar to last month), with core inflation excluding government intervention (higher purchases taxes on several items) up by 2.7%. The main surprise in March’s CPI was the rather moderate price increase for the “travel abroad” item by only 1.6% m/m (we were expecting 9%), in light of the surge in demand for flights abroad following the cancellation of Covid restrictions. There is strong pent-up demand for travel abroad (3.7% of the basket) following two years of Covid. We expect a sharp price increase in April (also due to the holidays) of 13% m/m. Housing rental prices continue to accelerate but rather modestly, up 3% y/y (owner equivalent rental prices) from 2.9% last month. We expect this item to push higher in the coming year (by 4.5% NTM, contributing 1.1% to inflation) due to low inventory and increased demand from the Ukrainian/Russian immigrants. Currently, housing purchase prices (a separate survey, not factored into the CPI) are up 15.2% y/y, accelerating from 13.4% last month. The PPI (excluding fuel) increased by 1.7% m/m and by 9.5% y/y (up from 8.7% last month). Our current inflation forecast stands at 0.8% m/m in April, 0.5% in May, zero in June and 2.8% in the next 12 months. Implications for monetary policy: This lower-than-expected CPI will not alter the gradual move to reduce accommodation. By May 23th (the next rate decision), April’s (high) CPI will have been released, showing inflation up 4% y/y. We expect steady r...

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