Pent-up demand impacts inflation, while rental prices moderate

ISRAEL - In Brief 18 Apr 2021 by Jonathan Katz

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Highlights of the weekly macro review: Inflation in March surprises slightly on the upside The CPI in March reached 0.6% m/m and 0.2% y/y. We (and the market) had expected 0.5% m/m. Pent-up demand was felt on domestic vacation prices (9.7% m/m) and cultural events and parties (3.7%). This was offset by a moderation of housing prices (rental equivalent) to 1.0% y/y from 1.5% last month. As a result, core inflation softened to 0.2% m/m from 0.3%. We expect inflation of 0.9% in the NTM, as we view pent-up demand as transitory, while pressure for shekel appreciation will continue. Economic indicators continue to point to a rapid recovery Consumer confidence has rebounded to pre-Covid levels. Job vacancies surged by 69% m/m in March due to the opening up of the economy and lack of available workers who prefer to remain on furlough (receiving 80% of their base salary). This furlough law will be maintained through July and is creating a shortage of labor. New home sales increased in February by 13% m/m and 20% y/y. Tax revenues increased sharply in March (up 24% y/y). The fiscal deficit moderated to 12.1% GDP in LTM from 12.4% and is expected to decline to 6%-7% by end-year. FX: In February, Israeli savings institutions were net sellers of 2.4bn USD, as their assets purchased abroad (2.4bn) were offset by hedging of 4.8bn. The economy continues to rebound: Nearly all restrictions on activity have been lifted as 5ml Israelis are fully vaccinated with mostly only children not vaccinated. Leisure, accommodations, restaurants and events are permitted for those vaccinated. The number of new infections continue to decline as does the number of seriously ill.Masks are no longer mand...