No real surprises in the August CPI

ISRAEL - In Brief 14 Sep 2021 by Jonathan Katz

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The CPI in August rose by 0.3% m/m (in line with consensus, we were expecting 0.24%) and by 2.2% y/y, up from 1.9% last month. Core inflation rose by 0.2% and by 1.9% y/y, up from 1.7% last month.There were no real surprises in the various items. The main housing (rental) item increased slightly to 1.9% y/y from 1.8% last month. Furniture and appliances increased by 0.6% m/m (4.1% y/y) and cars (both new and used) increased by 1.1% (3.6% y/y), the main items impacted by higher shipment costs and supply disruptions. Domestic vacation costs increased by 10.4% m/m and 23% y/y as Israelis are vacationing less abroad. On the other hand, travel abroad costs (including flights) declined by 1.2% m/m.The PPI (excluding fuel) increased by 0.8% m/m and 7.1% y/y, up from 6.3% last month.The housing (ownership) survey (not factored into the CPI), which measures housing purchase prices, increased by 1.3% m/m in the last survey and by 8% y/y, up from 7.7% last month and 4% in January. The froth in the housing market has the Bank of Israel concerned but we doubt this will impact monetary policy.Implication for monetary policy: With inflation expected to remain around 2% y/y (even higher in the short run) through mid-2022, and the economy recovering rather rapidly (the output gap is nearly closed), we expect the first rate hike in Q322, assuming the Fed signals a similar bias.--