April's rate hike appears more certain

ISRAEL - In Brief 15 Feb 2022 by Jonathan Katz

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January’s CPI slightly exceeds expectations Inflation in January increased by 0.2% and by 3.1% y/y (up from 2.8% last month). Market expectations were in the 0.0%-0.1% m/m range. There were no big inflation surprises, several items increased slightly more than expectations; furniture and home appliances by 0.7%, vehicles by 1.3%, meals away from home by 1.1%. The housing (rental) item rose by 0.1% (instead of a slight decline) and the seasonal decline in apparel prices was relatively modest (-5% m/m). Food prices rose by 1.3% mostly due to a spike of 18% in soft drinks due to the imposition of a sugar tax. Core inflation remained stable at 2.7%. Core inflation excluding “government intervention” is up 2.2% y/y. The PPI (excluding fuel) was up 1.1% m/m and up 9.2% y/y (accelerating from 8.2%). Housing purchase prices (a separate survey not factored into the CPI) increased by 1.5% m/m and by 11.3% (accelerating from 10.6% last month). Implication for monetary policy: Our call for a rate hike on April 11th appears more certain, with inflation above 3% y/y (as are one-year inflation expectations in the bond market) and expected to reach 3.3% next month, and core inflation slightly below 3%. The labor market appears strong, and the frothy housing market will most likely increasingly be a monetary consideration. The bigger question is the timing for the second hike: most likely in Q322 or Q422 as inflation y/y will remain close but slightly below 3% through August 2022.