Sharp decline in inflation will prevent tightening this year

ISRAEL - Report 22 Jul 2019 by Jonathan Katz

Highlights:

June's CPI (-0.6% m/m, 0.8% y/y) came in way below expectations.

* Both fresh produce and rental prices surprised on the downside.
* Nevertheless, core inflation remained stable at 1.1% y/y.

We expect inflation to reach 1.0% in 2019 and 1.1% NTM.

* This forecast assumes that Q1 2020 will witness a sharp increase in taxation (contributing 0.4% to inflation) in order to bring the deficit down.
* On the other hand, the shekel is likely to appreciate further on strong fundamentals and a hawkish BoI policy stance.

Despite the BoI rate forecast of three hikes by the end of 2020, we do not expect tightening until mid-2020.

Now read on...

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