Rental price inflation accelerates and the labor market tightens; shekel weakens slightly as hostilities continue

ISRAEL - In Brief 21 Jul 2024 by Jonathan Katz

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Geopolitics: Israel bombed strategic sites in Yemen (oil refineries and other facilities at the Hodeida port) in retaliation to the Houthi drone attack on Tel Aviv (killing one Israeli and wounding several people). On Sunday, missiles fired at Eilat were intercepted. Netanyahu is set to travel to the US to give a speech in front of Congress, although a cease-fire agreement has yet to be reached. There are still disagreements that need to be settled out, and some say Netanyahu continues to drag his feet in order to keep his government intact. Missile barrages from Hezbollah continue in the North as well as Israeli targeted strikes in Lebanon. CPI in June in line with expectations June’s CPI was up 0.1% y/y (2.9% y/y) in line with market expectations. Rental prices (OER) accelerated to 2.6% y/y (from 1.9% last month). As a result, core inflation accelerated to 2.5% y/y from 2.2% in May. We expect inflation to reach 3.0% in the next 12 months, impacted by an expansionary fiscal policy, a tight labor market, wage pressure and supply disruptions. The labor market remains tight Unemployment (official definition, seasonally adjusted) declined to 3.2% in June from 3.4% last month. Job vacancies remain elevated, especially in the construction sector. The demand/supply ratio (job vacancies to unemployed) increased to 0.96 from 0.77 pre-war. A tight market has supported wage growth of 6%-7%, not in line with the inflation target. FX: Last week, the shekel weakened by 0.4% against the basket of currencies due to declining global equity markets and lack of significant progress regarding a cease-fire. It is not clear how the recent strike in Yemen will impact the shekel this week. L...