Inflation accelerates, supportive of steady tightening

ISRAEL - In Brief 15 May 2022 by Jonathan Katz

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April’s CPI increased by 0.8% m/m (4.0% y/y), in line with expectations Core inflation increased by 3.4% y/y from 3% last month, is more broad- based. Accelerating inflation will support a 0.4% rate hike on May 23rd. Our current inflation forecast stands at 3% NTM.The fiscal posture continues to surprise on the positive side The fiscal surplus in April reached 8bn ILS and 32bn YTD. The cumulative fiscal deficit declined to 0.6% GDP in the last 12 months. We expect further gradual bond issuance reduction. Positive fiscal numbers (and lower inflation in Israel compared to US) support wider negative differential between the Israeli 10-year and US treasuries. FX: The shekel appreciated last week by 1% against the euro and 0.1% against the dollar. Institutions purchased 4bn USD in March and 10.7bn YTD. Institutions increased their FX exposure to 17.6% in March from 17.0% in February.Economic indicators continue to point to steady growth Manufacturing exports increased by 2.8% m/m in April. Trend data point to growth of 9% saar in the February-April, mostly from chemicals (which includes higher global prices). Imports of consumer goods increased by 19% (mostly new vehicles), raw materials are up 8% and machinery and equipment up 30%. Although chain store sales contracted by 1.8% saar in Q122, credit card purchases increased by 3.5% as consumption is more service oriented, and less goods. Credit card purchases actually increased by 7% m/m in April (sa) underlining the strong private consumption momentum. Purchases declined modestly in the first 9 days of May, possibly due to seasonal adjustment issues. The CBS business survey points to steady growth and positive expectations ...