Tightening labor market and strong growth support higher rates

ISRAEL - In Brief 06 Feb 2022 by Jonathan Katz

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The business sector survey reflects fairly strong growth in January (except for hotels); the outlook ahead is generally positive. This print is surprisingly strong in light of the peak of the Omicron wave.Wage growth remains moderate Wage growth is averaging 3.4% annual over the past two years, mostly in the hi-tech sector. Total disposable income (our estimate) is expanding somewhat modestly, as fiscal policy has been far from expansionary.Rapid credit growth likely to be increasingly a monetary concern. Total household credit for housing is up 14% y/y, non-housing credit is up 10% and private sector credit is up 14%. Total household debt/GDP is relatively low at 42%, while private sector debt stands at 68%. Unemployment declines despite Omicron Narrow unemployment declined to 3.5% in the 1st half of January from 3.9% in the second half of December. The number of employed increased by 21k, despite weaker domestic demand due to Omicron.Consumer confidence declined sharply in January, probably due to the Omicron wave, declining equity markets and inflation fears.The BoI sees strong growth in Q421 reaching 5%, following 2.7% in Q321.FX: The shekel weakened against the basket by 1.3% last week (3.2% against the Euro), on the back of equity market volatility. Inflation: We have updated our February CPI to 0.5% m/m due to a weaker shekel. March is also expected to increase by 0.5% (previously 0.4%) due to higher oil prices translated into higher petrol prices. We have updated our annual inflation to 1.9% (from 1.8%) under the assumption that shekel appreciation this year will be less pronounced, assuming less favorable market conditions. We assume Brent oil prices reach 95 ...