Israel: Inflation increases in August
Inflation increased to 4.1% in August (July: 3.3%), above market expectations and moving further above the Central Bank’s 1.0–3.0% target range. Looking at the details of the release, the change in prices for food rose at a more moderate rate in August, while prices for transportation and communication and education, culture and entertainment grew at a quicker rate.
Annual average inflation fell to 4.7% in August (July: 4.8%). Meanwhile, core inflation ticked up to 4.0% in August, from the previous month’s 3.8%. Finally, consumer prices increased 0.48% in August over the previous month, accelerating from July’s 0.29% increase. August’s result marked the highest reading since April.
Currency weakness—the shekel has lost around 7% of its value against the USD so far this year—solid domestic demand and the recent uptick in energy prices are all contributing to keeping inflation fairly elevated. As such, a further interest rate hike by the Central Bank is still on the cards at the Bank’s next meeting on 23 October.
On the monetary policy implications, Goldman Sachs’ analysts said:
“The BoI flagged in the last MPC meeting that they expected the August CPI release to show an increase in inflation, and we do not think that this release alone would tilt the central bank to put rate hikes back on the table. Nevertheless, we think that given the ongoing depreciation pressures on the Shekel, the central bank is likely to keep its hawkish guidance going forward.”