Private consumption rebounds in early 2022

ISRAEL - In Brief 03 Apr 2022 by Jonathan Katz

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Consumer spending has accelerated Credit card purchases increased by 1.8% m/m (in real terms) in February, following 2% in January as the Omicron impact dissipates. Chain store sales declined by 1% in January-February as consumer spending shifts more towards spending on services. This follows a 4% cumulative decline in November-December. Initial data for March points to weak domestic spending, possibly due to a surge of outgoing tourism as restrictions are lifted. Generally, strong domestic demand in Q122 will be supportive of monetary tightening.Inflation: We expect travel abroad costs to spike We expect the travel abroad item (3.7% of the basket) in the CPI to increase by 16% cumulative in March-April, contributing 0.6% to inflation. This will be due to mostly a surge in demand as restrictions are lifted, as well as seasonal holiday factors. Contributing factors include higher fuel costs, and higher inflation abroad. The cost of vacation spending abroad (hotels, car rentals etc) is measured by the general increase of headline inflation (which is significant for European destinations). We expect inflation of 0.8% m/m in March and 0.8% in April (with petrol prices up 5.5%). Moderating inflation will be some shekel appreciation.Policy rates: Last week, the BoI Governor Yaron reiterated what his deputy (Abir) said in the previous week: “Monetary tightening will be more rapid than what was previously expected”. We expect a 0.15 hike in April (although we cannot rule out a hike of 0.4 basis points), a 0.25 hike on May 23th and a third hike of 0.25 on July 4th. We see policy rates at 1.25% in one year. Slowing inflation in 2023 will slow further tightening considerably.FX: ...