July’s CPI surprises slightly on the upside

ISRAEL - In Brief 16 Aug 2021 by Jonathan Katz

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July’s CPI increased by 0.4% m/m above expectations for 0.3% Headline inflation increased to 1.9% y/y (from 1.7%), core inflation reached 1.7% (up from 1.2%). Housing rental prices accelerated slightly, reaching 1.2% y/y (up from 1.0% last month). Housing purchase prices (a separate survey) increased by 7.7% y/y (up from 7.3%). Looking ahead, we expect inflation to reach 1.1% in the next 12 month, as the transitory factors dissipate, offset in part by higher housing rental prices. Continued shekel appreciation will moderate inflation as well. Trade data reflect slowing export growth Manufacturing exports expanded by 3.8% saar in May-July, mostly on rapid growth in electronic components. Imports continue to expand rapidly, an indicator of strong domestic demand. The expansion of the trade deficit has been mostly offset by robust hi-tech service exports, therefore the CA surplus remains strong. New home sales surge In June, the number of new home sales increased by 27% y/y, reaching a record level due to low rates, lower taxation on investors and the general wealth effect from financial assets. Business sector confidence remains generally high Manufacturing, retail, and services are all reporting expectations for strong growth, while hotels are concerned regarding renewed infections. Inflation expectations in the NTM remain low compared to market expectations: 1.44% in industry, 1.26% in retail trade. FX: The shekel appreciated by 0.2% last week (against the basket) and by 1% since the beginning of the month. Israeli institutions were net sellers of 3.9bn USD in June and 16bn YTD. Institutions have reduced their FX exposure. Covid: The number of infections and seriously ...