Inflation in October as expected, core accelerates

ISRAEL - In Brief 15 Nov 2024 by Jonathan Katz

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Inflation in October as expected, core accelerates In October, the CPI rose by 0.5% m/m (according to consensus, we were leaning towards 0.6%), and remained stable at 3.5% y/y. Core inflation (The CPI excluding energy and fresh produce) accelerated to 3.3% y/y from 3.0% last month, mostly due to the sharp swing in airfare (17.2% m/m, + 11.2% y/y, up from -2.6% y/y last month). We have elaborated about this volatile CPI item (1.7% of CPI) in the past, which is impacted by sharp seasonality (October was a holiday month) and cancellation of foreign carriers to Israel. Excluding this item, core inflation remained stable at 3.2% y/y. Housing rental prices (OER) nudged slightly higher to 2.9% y/y from 2.8%, other services (excluding travel) were up 4.1% y/y from 3.8% while core goods declined slightly to 2.0% from 2.3%. The PPI (excluding fuel) moderated to 0.8% y/y from 1.8% last month. In short, core inflation excluding travel remains stable but above target on wage pressure, fiscal expansion and supply constraints. Inflation outlook: We will present our revised inflation forecast in next week’s weekly review but the direction is towards more moderate inflation going forward, due to a more restrictive fiscal policy, some easing of supply constraints (assuming a cease-fire in the North in the near future) and an erosion of purchasing power (due to fiscal measures freezing public wages, minimum wage, stipends, tax brackets). The jocker in the pack is the inflationary impact from other fiscal adjustments with VAT up 1% in January 25 (and possibly more), higher prices for public transportation, new vehicles and municipal taxes. Implication for monetary policy: With inflation y...