October’s CPI surprises on the upside

ISRAEL - In Brief 15 Nov 2022 by Jonathan Katz

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Inflation in October came in at 0.6% m/m (5.1% y/y up from 4.6% last month), above market expectations which were generally in the 0.4%-0.5% range. Core inflation accelerated to 5% y/y (from 4.7%). Rental prices (OER) accelerated to 5.6% y/y from 5.3%, continuing an upward trend since the beginning of the year. Food prices (not including fresh produce) increased by 1% m/m and by 5% y/y. We note that this item has increased modestly compared to other DM, and there is much pressure to hike prices in the pipeline, such as dairy products expected to move higher next week. There were some encouraging numbers such as the modest 0.1% m/m increase in the “food away from home” item as well as the 0.3% increase in vehicle prices, two items which have increased rapidly in previous months. Furniture and home appliances declined by 0.5% m/m as well. The PPI excluding fuel increased by 0.4% m/m and by 6.4% y/y up from 6.2% last month. Housing purchase prices (a survey not factored into the CPI) increased by 1.1% m/m and by 19.8% y/y, up from 19.0% last month. It is difficult to explain this steady upward trend in prices as demand has declined sharply. Implications for monetary policy: Following this relatively high print, and especially the acceleration of core inflation, we currently expect a 0.75% rate hike next Monday to a level of 3.5%. We still see the terminal rate at 3.75%, but cannot rule out 4.0%. One more piece of the puzzle remains for the next rate decision: Q3 GDP growth (to be released the 16.11), expected to be a weak print (we expect 1.5%-2%) due to the sharp decline of taxes on imports of new vehicles (imports declined sharply), but this will be viewed as more “tech...