January's fiscal data is expected to impact the bond market
Robust wage growth remains a factor supportive of some inflationary pressure. On the other hand, the shekel continues to appreciate, moderating inflationary pressure. Higher rental prices and likely tax hikes following the election will be the main factors contributing to inflation this year (we expect 1.0% y/y). The bond market is likely to react to January's fiscal data, to be released this week. We do not envision a rate hike until next year.
Two factors are key to inflation:
* On the downside, the shekel strengthened by 0.5% last week and 2.9% YTD.
The FX pass-through is estimated at around 10%-16%.
* On the upside, average wage growth is up 4.4% y/y in Nov 2018.
- Wage growth is due both to the 6% minimum wage hike in Dec 2017, as well as a still tight labor market in certain sectors.
- This is supportive of some inflation pressure, especially in services.
- For this reason we expect housing rentals to increase by 2.3% this year.
Consumer confidence has declined since end-2018.
- This could be due to the decline in financial asset prices.
- This is supportive of softer PC demand.
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