Wage pressure continues

ISRAEL - In Brief 06 Jun 2022 by Jonathan Katz

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Wage pressure continues in the business sector • Total wages increased by 1.5% m/m in March (sa). • Business (private) sector wages are expanding by a fairly rapid annual pace of 6.5%. • The Bank of Israel has acknowledged that business sector wages are expanding by a somewhat more rapid pace than pre-Covid. • Public sector wages are expanding by less than 2%, due to a freeze in wage agreements through end-2022. The BoI is concerned over wage agreements in 2023. • In general, higher wages will support inflation going forward. Generally, economic indicators indicate further expansion • High-tech service exports are up 8.1% saar in Q122 following growth of 26.9% in Q421. • The hi-tech sector raised 1.75bn USD abroad in May, up from 0.75bn in April, despite market weakness. • Chain store sales increased by 1.4% (sa) in April, following modest contraction in the previous two months. Consumption has shifted more towards services. • The Bank of Israel composite index increased by 0.18% in April, following 0.09% in March and 0.07% in February. • We note that the surge in travel abroad following the cancellation of restrictions is shifting some domestic consumption to consumption abroad. FX: The shekel continued to appreciate last week by 0.9% against the dollar, 0.4% against the Euro, and 0.4% against the basket of currencies. • In April, Israeli institutions were net sellers of 0.5bn USD, following purchases of 10bn in Q122, reducing their FX exposure to 16.4%. Inflation: We revised our June CPI forecast to 0.4% m/m (from 0.2%) due to a sharp 9.4% increase in petrol prices, only partially offset by a modest shekel appreciation. • Our inflation forecast for the next 12 months...