Rate hike of 0.5% expected on Monday

ISRAEL - In Brief 17 Feb 2023 by Jonathan Katz
Rate hike of 0.5% expected on Monday Recent economic and political developments in Israel will support a more aggressive monetary tightening than initially expected. We expect a hike of 0.5% to 4.25% tomorrow, due to the following factors: The inflationary environment remains “sticky”. Core inflation accelerated in January to 5.1% y/y from 5.0%, mostly due to rental prices (OER) pushing higher to 6.7% y/y (from 6.3%). Non-housing service prices (ex. Taxes) reached 5.9% y/y (up from 5.8%). Inflation remains “broad-based” with 72.8% of all detailed CPI items up more than 3% y/y (similar to last month).Economic growth remains steady and fairly strong. Q422 GDP growth surprised on the upside, reaching 5.8% saar (expectations were for 2.5%-3%). Private consumption surged by 10.6% but this was mostly due to a spike in new vehicle purchases (before taxes on some models increased in January 23). Nevertheless, consumption of services was up 12%. Residential and infrastructure investments expanded rapidly, while both manufacturing and hi-tech service exports declined by nearly 10%. More recently, the January Business Sector Sentiment Survey points to presently robust growth, despite expectations for some deceleration going forward.The labor market remains tight. Job vacancies increased slightly in January to 142.7k from 142.0k in December. Although unemployment has drifted higher to 4.2% in December from 3.5% in June, this is mostly due to an increase in labor participation, not a decline in the number of workers. Wage growth in the private sector remains strong especially in the service sectors (less hi-tech). Upcoming public sector wage pressure remains a concern.Global moneta...

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