Rapid wage growth likely to keep inflation elevated

ISRAEL - In Brief 06 Aug 2023 by Jonathan Katz

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Wages continue to accelerate Initial data for average wages in June, reflect nominal growth of 6.3% y/y (for Israelis only, exc. foreigners), accelerating from 5.4% in May. Wages have accelerated in recent months on the back of a tight labor market, especially in service sectors. This is likely to spill over onto inflation in the coming months. So far, the BoI has not really expressed concern regarding wage growth, noting that in real terms, wages have not really increased. Nevertheless, rapid wage growth could be a supporting factor supporting another hike on September 4th, although the main factors will be July’s inflation print and the direction of the shekel. Politics: Political turmoil continues surrounding the judicial overhaul legislation. Following the approval of the reasonableness clause cancellation by the Knesset, the Supreme Court will discuss on September 12th several petitions against this legislation. All 15 Supreme Court judges will participate. The majority of judges have a more left-center (democratic) bias, and therefore they could shoot this down, or decide it is not in their jurisdiction to deal with a Basic Law. Netanyahu has not said whether he will abide by their decision (if they shoot it down) and this could result in a judicial crisis. The Supreme Court will also review the legislation regarding the inability of the Knesset to remove the Prime Minister from office except for health (physical or mental) reasons. This is regarded as a personal law for Netanyahu who is currently under indictment and proceeding with his trial. In short, we could see increasing conflict between the coalition and the Supreme Court, supporting further market volati...