The annual inflation rate in Israel is indeed expected to decrease from the 5% rate recorded in March, but not because Israeli food or housing prices decreased in April.

After the positive surprise in terms of Israel’s credit rating, when both S&P and Moody’s (despite lowering the rating horizon) noted the country’s economic strength and stability during the last quarter, comes another important moment in the local macro sector-the publication of the consumer price index.

Today (Monday) at 18:30, the Central Bureau of Statistics will publish the inflation data for the month of April, when the expectations of most economists in the market are that it will drop to the level of 4.6%-4.7%, compared to 5% in March. Today the unemployment figures in the economy will also be published, and tomorrow (Tuesday) an estimate for the growth of the Israeli economy in the first quarter of 2023 will be published.

Inflation in Israel, let’s remember, is far above the range of the Bank of Israel (1%-3% at an annual rate), when it began to climb at the beginning of 2022 and reached its peak last January, when it stood at a rate of 5.4%. The Bank of Israel raised interest rates aggressively to fight rising inflation, but it only managed to moderate to a rate of 5% as of March (then registering a monthly increase of 0.4%).

The current inflation figure will, of course, have a decisive effect on the Bank of Israel’s upcoming interest rate decision, on May 22. The Bank of Israel interest rate is now at a rate of 4.5%, and the markets estimate a 70% probability of a further increase in its rate even now, before the publication of the data. The unemployment data will also influence the decision of Governor Prof. Amir Yaron, since the local labor market is particularly tight and is frequently mentioned in interest rate decisions. This is mainly due to the potential for upward wage pressures that will make it difficult to fight inflation (partly due to the renewed wage agreements in the public sector). According to forecasts, the quarterly unemployment rate will remain unchanged at 3.9%.

Fruits and vegetables have become more expensive, and the devaluation of the shekel doesn’t help either

The recent fruit and vegetable price increases reported in the media are not expected to affect the index, which refers to the month of April only: the Israeli economists even estimate a decrease in the annual inflation rate in the coming months-but according to their definition, this is a technical decrease, since the April, May and July indices of last year were unusually high, and are slowly leave the calculation of the index.

Source. Globes.co.il