April’s CPI surprises on the downside

ISRAEL - In Brief 17 May 2021 by Jonathan Katz

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Headline inflation in April increased by 0.3% m/m (0.8% y/y, up from 0.2% last month). This was below market expectations which were in the 0.4%-0.5% range (m/m). Core inflation (the CPI excluding energy items and fresh produce) accelerated slightly to 0.45% y/y from 0.21% last month. The major inflation surprise (for us) came from the domestic vacation item (hotels, etc.) which actually declined by 4.9% m/m in April, despite the Passover holiday season (the usual seasonality is closer to +9%). We note that in March this item spiked by 9.7% m/m as restrictions were lifted and hotels reopened, without any real option of vacation abroad for Israelis. We had expected the usual Passover seasonal impact, and not a price decline. This is not a major item in the CPI (0.8% of the basket) but tends to be volatile. Another downside surprise came from housing rental (equivalent) prices which actually moderated slightly to 0.9% y/y from 1.0% last month (we had expected a move higher).Signs of inflationary pressure from higher import (commodities, shipping) prices or pent-up demand were witnessed in food prices (up 0.7% m/m), furniture and home appliances (up 0.4%), and events/parties (up 2.9%). Housing purchase prices (a separate survey, not factored into the CPI) increased by 4.5% y/y (up from 3.8% last month) and are up 7.9% annual in the last six months. We doubt that signs of some froth in the housing market will have any influence on monetary policy, which is geared at supporting economic recovery and more focused on inflation (which remains relatively low). Bottom line: Inflation is accelerating in Israel (as in most countries) on the back of the low base effect, higher comm...