Rate hike likely on Monday

ISRAEL - In Brief 09 Jul 2023 by Jonathan Katz

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We see a 60% probability of a 0.25% rate hike on Monday to 5.0%. What supports further tightening? Inflation remains sticky and accelerating in the service sectors. Granted, core inflation did slow to 4.9% y/y in May from 5.3% in April, but this was due to a sharp deceleration of core goods to 1.6% y/y from 2.5% while core services have accelerated, both rental and non-rentals:Economic growth remains fairly robust, with signs of some slight deceleration. June’s Business Tendency Survey points to fairly steady economic growth at present (with some modest softening by 2.2 points to 21.5) with expectations for some weaker growth going forward (see graph). The net balance for expectations for activity next month declined modestly, as did the expectations component for employment, but still reflect expansion. The high-tech service sector still expects exports to increase next month. In short, the net balance of the major components continues to reflect expansion. The labor market remains tight. The labor market remains tight and at full employment. Unemployment remained stable at 3.6% (seasonally adjusted data) while the rate of participation in the labor market improved slightly to 64.2% from 64.1%. More people are looking for work than previously and finding employment (therefore the unemployment rate remained stable). 11.7k new jobs were created in May and 99k YTD.Wage growth appears to be accelerating. Average wages in May were 5.4% above that one year ago, accelerating from 5.1% y/y in April (according to initial data from the CBS). Detailed wage data exists only for April and points to rapid wage growth in manufacturing (6.4% y/y), retail (6.6%) and food services. A t...