Next rate hike likely to be 0.5% as well

ISRAEL - In Brief 10 Jul 2022 by Jonathan Katz

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Inflation: We expect June’s CPI (to be released on Friday) to increase by 0.5% m/m (4.6% y/y, up from 4.1% in May), impacted by a 9.4% increase in petrol prices and a sharp increase in travel abroad prices. Food prices also moved higher, while fresh produce prices declined as well as apparel prices (seasonal). The fiscal surplus reached 0.4% GDP in the last 12 months through June. This is the first fiscal surplus since 2007, and the strongest fiscal performance since 1987. Tax revenues are up 25% y/y in the first half of the year while non-Covid expenditures are up only 2.8%; below the 6% increase allocated in the fiscal budget. This strong fiscal performance is supportive of further reduction of bond issuance: good news for the bond market. Recent economic indicators suggest steady growth:  * The Business Sector Survey points to expectations for steady growth ahead, with expansion in employment, including in the hi-tech sector.  * The business sector plans on increasing employment, including the hi-tech service sector.  * Hi-tech service exports increased by 2.6% m/m in April.  * Unemployment declined to 3% in the 1st half of June on strong employment growth.  * Wage growth in the business sector expanded by 6.4% y/y (through April).  * Chain store sales increased by 0.6% saar in March-May (in real terms), following a contraction of 1.3% in the previous three months.   * 786k Israeli traveled abroad in June (sa), 3% above the average level in 2019. Monetary policy: Rates increased by 0.5% to 1.25% (as expected), with a strong signal of further aggressive tightening. The BoI expects rates to reach 2.75% one in Q223 with inflation reaching 3.3% from Q222 to Q223. FX: La...