REAL-TIME GLOBAL RESEARCH
Israel: Teflon core in a sticky world
Key takeaways
- Inflation surprised to the downside at 1.6%oya in September, staying below the mid-point of the target range
- Core momentum remains soft; shelter’s cooling (971) 4561-2005 We expect the BoI to hold next week, cut next month Even as the global inflation outlook has deteriorated, Israel’s inflation trajectory remains subdued.
- In September, inflation picked up to 1.6%oya from 1.5% previously, but still surprised to the downside (JPMe and consensus: 1.8).
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Research evidence excerpt
Inflation surprised to the downside at 1.6%oya in September, staying below the mid-point of the target range
EM, Economic and Policy Research
Core momentum remains soft; shelter’s cooling (971) 4561-2005 We expect the BoI to hold next week, cut next month Even as the global inflation outlook has deteriorated, Israel’s inflation trajectory remains subdued. In September, inflation picked up to 1.6%oya from 1.5% previously, but still surprised to the downside (JPMe and consensus: 1.8). The increase was largely due to base effects, while sequential momentum was low, at close to zero in both headline and core CPI. Services momentum eased, core goods momentum remained deeply negative, and food momentum picked up.
The authorities’ tax measures have dampened the impact of the global energy shock on prices at the pump ahead of elections. If oil prices remain high, they are likely to eventually filter into local inflation. Yet soft inflation momentum now appears broad-based across components and increasingly entrenched. Median momentum across 115 CPI components was 0.3%m/m, saar, last month and averaged 0.1% ar YTD. We don’t think the impact of the recent correction in the ILS on pricing behavior will be substantial – the economy still has not fully absorbed the massive ILS appreciation seen in previous quarters.
The slowdown in housing inflation – to 1.7%m/m, saar, in September from an average of 4.3% ar in previous eight months – is an important signal for the outlook.
Rent inflation is quite inertial, and a shift to a lower regime may imply that it could stay there for a prolonged period. Housing market fundamentals support a reasonably dovish outlook. As a reminder, shelter cost inflation has been contributing almost two-thirds to the over-year-ago CPI inflation rate recently.
Lower housing services inflation will provide space for somewhat higher goods price inflation in coming quarters amid the increase in commodity prices and higher global core goods inflation.
We continue to expect that inflation will remain slightly below the mid-point of the
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