Inflation accelerates but remains fundamentally low

ISRAEL - In Brief 21 Mar 2021 by Jonathan Katz

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Highlights of the Weekly Israel Macro Wrap Up 22.3.21February’s CPI reached 0.3% m/m, above expectations This was due to higher rental prices and an upward correction in clothing prices. Core inflation moved higher to 0.3% y/y from zero last month. The major forecasters on average now expect inflation to reach 1.0% NTM (as we do), up from 0.7% one month ago. Inflation expectations in the bond market have moved higher for all durations. Pent-up demand could impact inflation in the short run, but the slack in the labor market will remain in the coming year. We expect inflation in Israel to average 1.0%-1.5% in the next few years, as steady pressure for shekel appreciation keep inflation relatively low. Economic indicators point to a rapid recovery Consumer confidence in the 1st half of March reached -10 points compared to -16 two months ago and -7 in February 20, pre-Covid. Rapid opening up of the economy has pushed credit card purchases up by 5% in the last week (through 1.3) and by 26% since mid-February. Bonds: In January, foreigners increased their exposure sharply to both Israel bonds and short-duration notes (Makam). The economy has opened up significantly: Restaurants, all shops/malls as well as cultural activities, and weddings (with limitations). The important parameter of the number of seriously ill continues to decline (down to 550, less than half of January’s level), as well as the low rate of infections. Politics: With elections tomorrow, great uncertainty remains regarding the next coalition. Recent polls point to the Likud party (Netanyahu) strengthening somewhat, probably due to rapid vaccinations and opening up of the economy. Nevertheless, Netanyahu wil...