Inflation in November at low end of expectations

ISRAEL - In Brief 15 Dec 2021 by Jonathan Katz
Low CPI print in NovemberInflation in November declined by 0.1% m/m and increased by 2.4% y/y (up slightly from 2.3% last month). Expectations were mostly in the 0.0%-0.1% range (our forecast was -0.1%). Both fresh produce prices (-4.6% m/m on warm weather) and clothing prices (-0.8%) surprised on the downside. Travel abroad prices declined by 3.5% (seasonal as well as due to shekel appreciation). Domestic vacation prices declined by 9.9% m/m and events/parties by 1.1% (mostly winter seasonality). Processed food prices declined by 0.3% m/m (up 2.8% y/y), contrary to the global trend. High taxation on disposable utensils contributed 0.1% to the CPI. Housing rental prices increased by 2.9% y/y (up from 2.0%), a fairly sharp monthly correction which was to be expected due to the hot rental market in Israel. Prices of vehicles increased by 1.3% m/m.Core inflation (the CPI excluding energy and fresh produce) remained stable in November and increased by 2.1% y/y (similar to last month). The PPI (excluding fuel) increased by 0.5% m/m and increased by 7.8% y/y (up from 7.5%). Housing purchase prices (a separate survey not factored into the CPI) continued to move higher: up 0.9% m/m and 10.3% y/y (up from 9.6%), but so far, the BoI views this as a supply issue, and not a low policy rate problem. Bottom line: Inflation in Israel is relatively low compared to most developed economies, mostly due to the steady shekel appreciation in recent years and increasing competition in several sectors.Governor Yaron has stressed that this low inflation environment (well anchored within the target range) enables the BoI to be patient regarding policy tightening. We expect the first rate hike ...

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