Today after trading (at 18:30) the CBS (Central Bureau of Statistics) will publish
The consumer price index (inflation) when the expectation is for an index of 0.3%-0.4% in December and an index of 5.3%-5.4% in the whole of 2022. A high index that has not been in about 15 years, but in 2023 a drop in the index is expected.
It seems that what will attract attention this time will be the apartment price index. This is a CBS survey that refers to previous periods, that is, while the price index refers to December, the survey refers to October-November. This survey is the quasi-official figure for the increase in apartment prices, although in the end it is only a survey. Apartment prices, let’s remember, are not weighted In the consumer price index. This index takes into account the changes in the costs-expenses of the public and not the changes in the assets (an apartment is an asset) and this despite the enormous significance of these changes on the situation and well-being of the consumer. What does enter the index are the maintenance-holding expenses of the apartment and the rental expenses.
The expectations are that the survey will indicate that the increase in apartment prices has been curbed. Despite the delay in the data and the fact that they refer to the situation two months ago plus, in recent months there is a clear trend of discounts and gifts that the contractors provide to the customers. These are promotions that express a drop in prices. It is also felt on the ground and the reason is clear – the interest rate makes it very difficult for the public to meet the apartment prices and mortgage payments, and on the other hand the contractors suffer from very low sales and some of them have flow problems that require an acceleration of sales through lowering prices. The question is whether this will already be reflected in today’s index or the one after it.
At Bank Hapoalim we have updated the CPI forecast in light of the government measures announced last week. The recession in the increase in electricity prices (2.5% instead of 8.2%), water prices (1% instead of 2.5%), and the freezing of the property tax led to a reduction in the forecast for the month of January. The reduction of the excise tax by nine shekels and the increase in the shekel are expected to lead to a reduction in the price of fuel in February. The forecast for the month of January was updated downwards to a rate of 0.0% and the forecast for the month of February was reduced to 0.1%. The inflation forecast for the next 12 months was reduced to 2.7%. Some of the measures have an impact on the deficit, such as reducing the excise tax on fuel or indemnifying the local authorities for freezing the property tax. Increasing the deficit has offsetting effects on inflation in the longer term, and they also reduce the government’s ability to moderate price increases through the use of the budget later in the year.
Alex Zbzinski, Chief Economist at Meitav Investment House Says that “the Bank of Israel signaled that it is close to the end of the interest rate increase cycle, after raising it by 0.5% to 3.75%. If there are no significant surprises in the inflation data, the interest rate increase is expected to end at the level of 3.75%-4%. Interest rate increase to 4 % is already embodied in the market. The transition from a “hawk” to a “neutral” signal by the Bank of Israel caused a significant decrease in yields in the medium-long parts of the yield curve.”
Yonatan Katz and Leader Capital Markets economists It was reported: “The labor market remains tight, a fact that puts upward pressure on wages, especially in industries that serve local demand. In the coming years, the gap that has opened up in public versus business wages is expected to partially close, which is expected to continue to contribute to inflationary pressures. The Bank of Israel identifies processes that may moderate the Inflation: Moderation in some of the index items (although inflation is still affected by strong local demand), a certain moderation in economic activity relative to the first half of 2022, and a still tight labor market but with signs of relief in some of the data. Our interpretation: Stabilization of the interest rate around 4% seems reasonable in an optimistic scenario Regarding the shekel. It is easy to see the interest rate rising beyond this level in the scenario of an “too” expansionary fiscal policy and damage to credibility (and a weakened shekel).”
And what is happening in the US?
Inflation in the US continued to cool down and decreased to an annual rate of 6.5%, in accordance with economists’ expectations. The index decreased in December by 0.1%. The monthly decrease is the sharpest decrease since the outbreak of the Corona epidemic at the beginning of 2020. At the same time, the core index (without the food and energy categories) fell to 5.7% – in line with estimates.The monthly rate was 0.3%, also in line with expectations.
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