The BoI is proceeding to revise the inflation target

ISRAEL - In Brief 14 Feb 2022 by Jonathan Katz
The BoI is proceeding to revise the inflation targetThe BoI has been considering altering the inflation target for several years now. The general direction (in our opinion) is to shift the inflation target from a range of 1%-3%, to “around 2% symmetric over the medium term” as the ECB target is formulated. The decision to revise the target commenced before Covid (Sept 19). The meaning of this likely revision is less tolerance when inflation exceeds say 2.5% over time but also less justification to hike when inflation is around 1.5%, as Governor Nadine Trachtenberg did in Nov 2018. With inflationary pressures more apparent at the moment, this target shift (not clear when this would happen, probably not before 2023) would mean more tightening relative to the current target.Strong labor market supports tighteningBroad unemployment declined in the second half of January to 5.5% from 5.8% in the first half of January, as 7k new jobs were created following 21k in the 1st half of January. The employment rate relative to the working age population is rapidly approaching pre-Covid. This a positive print, especially in light of the Omicron wave, and supportive of monetary tightening; we think on April 11. Housing inventory improvesThe number of new unsold homes for sale has increased steadily this year from 43.8k in Jan 21 to 47.1k in Dec 21. This is good news reflecting increasing inventory due to strong residential investments and completions, which should slow housing price pressure towards the second hell of 2022, rentals included which make up nearly 25% of the CPI.

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