Private consumption decelerates despite wage acceleration

ISRAEL - In Brief 04 Jun 2023 by Jonathan Katz

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Wage growth accelerated in Q123 to an annual rate of 6.3% (trend data) from 3.5% in Q422. This wage growth was witnessed in several sectors, both in public sector (wage agreement in the educational sector) but in the private sector as well. Initial data for April point to wage growth of 5.1% y/y, in line with inflation, still too high in order to push inflation down to target. Wage pressure is due to a tight labor market. Credit card purchases reflect contraction Credit card purchases (in real terms) contracted by 1.4% saar in February-April (trend data), following growth of 1.3% in the previous three months. Chain store sales declined as well, by 1.6% saar in Feb-April. Household are feeling the pinch from higher inflation (eroding purchasing power) and higher rates, pushing mortgage payments up. High-tech service exports continue to expand High-tech service exports expanded by 3% q/q in Q123. So far, this sector has held up fairly well, despite contracting investments and softer global demand. This will support the current account surplus, which is likely to remain strong in Q123 (due to a small trade deficit as well). The high-tech sector raised 0.55bn abroad in May and 2.85bn YTD, compared with 8.3bn this time last year. FX: The shekel continued to weaken last week, by 0.5% against the basket of currencies and by 2.4% in the last month. It was not clear what was the main factor in supporting shekel weakness, probably a combination of elevated geo-political risks and uncertainty regarding the judicial overhaul. Inflation: Petrol prices increased by only 0.6% on June 1st, as the reduction of the excise tax was extended, costing the MoF 175ml ILS per month. Politics: ...