Inflation in June: no surprises this time; core inflation remains low

ISRAEL - In Brief 16 Jul 2021 by Jonathan Katz

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June’s CPI came in at 0.1% m/m and 1.7% y/y (up from 1.5% last month), in line with domestic forecasters (and our forecast), although Bloomberg had zero m/m as the consensus. Core inflation (the CPI excluding energy and fresh produce) reached 1.2% y/y (up from 1.0% last month). As expected, the housing (rental equivalent) item accelerated slightly, up 1.6% y/y from 1.3% last month (17.2% of the basket). Food prices increased by 0.8% m/m (1.7% y/y). Both fresh produce (-2.9% m/m) and clothing (-3.0%) declined seasonally. Petrol prices were up 1.2%. There were some signs of the impact from higher shipping costs as furniture and home appliances increased by 0.4% m/m and 3.1% YTD, although prices for TV sets declined. The prices of cars (including used) declined by 0.4% (somewhat surprisingly) and are up 2.5% y/y. Domestic vacation prices increased by 4.3% m/m and 29.8% y/y (as traveling abroad remains limited). Food services away from home increased by only 0.5% and by 2.5% YTD, despite much fear of “pent-up demand”. Prices of “parties and events” (including weddings) remained stable following an 11.2% increase YTD. “Travel abroad” (3.7% of the CPI basket) was measured for the first time since February 2020 with a slight decline of 0.3% m/m, due to shekel appreciation and lower airfare (we had expected a slight price increase).The PPI excluding energy remained stable m/m and is up 5.7% y/y (up from 4.8% last month).Housing purchase prices (a separate survey not factored into the CPI) increased by 0.7% m/m and by 7.2% y/y (up from 5.8% last month) as housing demand is surging (as seen by new home sales and the record amount of new home mortgages in June). This is a major h...