Underlying (core) inflation remains low, rental prices moderate

ISRAEL - In Brief 16 Aug 2020 by Jonathan Katz

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Highlights of Weekly Israel Macro Wrap Up 17.8.20July’s CPI surprised slightly on the upside (0.2% m/m, vs. exp. 0.1%)Inflation is down 0.6% y/y and core inflation is down 0.37% y/y.Housing rental (equivalent) prices moderated to 1.4% y/y (from 1.7% last month).The PPI (excluding energy) is down 1.8% y/y.We expect inflation in the next 12 months to reach 0.5%, assuming a slightly stronger shekel, some increase in commodity prices and lower housing rental prices. Technical factors of items such as travel abroad (not yet being measured, and domestic vacation costs) will contribute 0.4% (strong base effect).Q220 GDP contracted by 28.7% saar (-7.8% y/y) as private consumption (-43.4%), exports (-29.2%) and investments (-31.6%) all fell sharply.Israel suffered a severe shutdown for most of the quarter.We expect GDP to bounce back in Q320, with Most Recent indicators in Q320 have been more encouraging:Manufacturing exports declined only by 1.6% saar in May-July.Imports of consumer goods are up 10.4%, following the lockdown.Credit card purchases in July-August appear to have stabilized.New home sales were up 22% y/y in June, rebounding from the closure. On the downside, consumer confidence declined sharply in July.Job vacancies declined by 2.2% m/m in June (-48.6% y/y), following two months of growth.Politics: The big geopolitical news last week was the agreement announced in which the UAE would normalize relations with Israel and in exchange Israel will not annex any territories in the West Bank. Netanyahu claims that annexation is not off the table in order to please his rightwing supporters. The agreement is basically a way to let him down the ladder and claim internationa...