Inflation accelerates in April

ISRAEL - In Brief 15 May 2022 by Jonathan Katz
Inflation accelerates in April Inflation accelerated to 4.0% y/y in April, up from 3.5% last month. The monthly CPI increased by 0.8%, in line with consensus but below our forecast of 0.9%. Core inflation accelerated to 3.4% y/y from 3.0%. Several months ago, the BoI began to calculate “core inflation excluding government intervention” (as taxes on soft drinks and disposable utensils spiked). This narrow core definition is up 3.1% y/y (from 2.7%). Inflation is definitely more broad-based (as Governor Yaron correctly claims). Industrial prices in the CPI are up 4.7% y/y (0.6% in April) while prices of services are up 4.4% (0.8% in April). Housing rental prices (OER) accelerated to 3.2% y/y in April from 3.0% in March.The item which surprised up mostly was travel abroad which increased by only 7.1% (we had expected 12%), despite surging pent-up demand and spiking energy prices. Domestic vacation prices increased by 11% (seasonal), vehicle prices were up only 0.4% and furniture and household equipment declined by 0.2%. Food prices increased by 0.6% (4.7% y/y). Housing purchase prices (a separate survey not factored into the CPI) increased by 1.9% m/m and by 16.3% y/y (accelerating from 15.1%); definitely signs of a frothy market which will increasingly become a monetary consideration. Bottom line: Although inflation was in line with expectations, we are increasingly witnessing signs of demand-push inflation, and not just supply disruptions/higher commodities. With economic growth decent (the output gap has basically closed) and the labor market tight, we expect a rate hike of 0.4% on May 23th, and steady but gradual tightening to 2% one year from now.

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