Rate cut in January appears realistic

ISRAEL - In Brief 15 Dec 2023 by Jonathan Katz
Inflation in November surprises on the downside The CPI in November declined by 0.3% m/m (expectations were for -0.1%) and slowed to 3.3% y/y from 3.7% y/y, Core inflation slowed to 2.9% y/y from 3.5% last month. The downside surprises came from the “travel abroad” item which decline by 5.7% (we had forecasted -3.8%), more sharply than the shekel appreciation in this month. Housing rental prices (OER) declined by 0.7% and slowed to 3.6% y/y from 4.9% last month. Non-housing services decelerated to 4.1% y/y from 4.2%. Fresh produce declined by 0.8% m/m, despite expectations of shortages due to the war. Implications for monetary policy: Clearly a rate cut on January 1st is back on the table, with this downside inflation surprise and sharp moderation in both headline and core inflation. The Fed dovish tilt is also a supporting factor as well.

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