December’s CPI surprises on the upside
Following two months of downward inflation surprises, inflation in December reached 0.3% m/m (expectations were for 0.1%) and 2.8% y/y (up from 2.4% last month).Food prices surprised on the upside, increasing by 0.5% m/m and 3.5% y/y. Rental prices (OER) increased by 0.4% and by 3.3% y/y accelerating from 2.9% last month.Higher taxation on second home buyers contributed 0.1% to the CPI (as expected). Furniture prices increased by 1.4% m/m (7.2% y/y). Vehicle prices increased by 1.2% m/m and by 7.9% y/y. Travel abroad costs remained stable, the despite shekel appreciation. From our calculations, inflation in December increased by 0.26% m/m. Core inflation increased by 2.7 y/y, increasing from 2.1% last month. The PPI excluding fuel increased by 0.1% m/m and by 8.2% (up from 7.8% last month).
Housing purchase prices (a separate survey, not factored into the CPI) increased by 1.4% m/m and by 10.6% y/y, accelerating from 10.1%.
The end of 2021 was characterized by a burst of inflation, following two months of lower-than-expected inflation in October-November. Supply chain disruptions pushed prices for durables higher.
Looking forward, we maintain our inflation forecast of 1.6% for 2022, assuming pressure for shekel appreciation will continue which will offset, in part, the impact of a tight labor market and higher housing prices.
Implications for monetary policy: We expect the first rate hike on April 11th (previously we expected in Q322), which will be supported by fairly higher inflation y/y stabilizing at around the high end of the target range (close to 3% y/y), and an...
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