September’s CPI comes in above expectations

ISRAEL - In Brief 14 Oct 2022 by Jonathan Katz

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September’s CPI comes in above expectations Inflation in September increased by 0.2% m/m (expectations were for 0.1% while some local forecasters were expecting zero) and 4.6% y/y (similar to last month). Core inflation increased by 4.7% y/y in the past three months. Housing rental prices (OER) increased by 0.6% m/m and by 5.3 y/y, accelerating from 5.1% last month. Other service prices accelerating to 5.8% y/y from 5.1% last month. September’s CPI was impacted by a 2.6% decline in petrol prices, a seasonal 8.5% drop in domestic vacation prices, and a 2.3% decline in travel abroad costs. Food prices decline by 0.4% m/m (seasonally) and are up 4.8% y/y. Food away from home increased by 0.5% (6.6% y/y). Prices of vehicles increased by 0.5% and by 10.3% y/y. Prices of furniture and home appliances increased by 0.6% and health care by 1.0%. Source: CBS and BoI Prices of purchased homes (a separate survey, not factored into the CPI) increased by 1.9% m/m and by 19% y/y (accelerating from 18.1% last month). The residential construction price index was flat while the PPI excluding fuel increased by 0.4% m/m and by 6.2% y/y (up from 5.8% last month). Source: CBS Implications for monetary policy: Inflation remains above target; core inflation especially, and increasing broad based (and more services oriented). It is fair to assume a 0.5% rate hike on November 21nd and possibly even 0.75% (depending on October’s CPI). We maintain our forecast for rates stabilizing at 3.75% in February 2023.