The consumer price index for February rose 0.7%, higher than the estimates, compared to the January and December indices. The 12-month backward inflation rate exceeded the inflation target for the second time in a row after 8 months below the upper threshold (3%).
According to Yonatan Katz of Leader Capital Markets, “In light of the high February index and the acceleration in housing prices, in the coming months the Bank of Israel is expected to accelerate the rate of interest rate hikes. It is very possible that we will raise interest rates “Annual inflation is expected to rise to at least 4% -4.5% (currently 3.5%) and stabilize there for several months. The fact that the labor market is showing strength and the economy is recovering also supports raising the Bank of Israel interest rate at a rapid pace.”
According to Ronen Menachem, Chief Economist of Mizrahi Tefahot Bank, “The February index, like its predecessors, primarily reflects supply pressures, with an emphasis on the energy item. In evidence, the index excluding energy rose significantly less than the general index and rose 3% ‘only’ in the last 12 months. Moreover, the index excluding food items, vegetables and fruits and energy has risen 2.3% in the last 12 months, ie within the inflation target.
Looking ahead, the index will stand in two opposite directions. On the one hand, the producer price index (excluding fuels) has risen 8.7% in the last 12 months and therefore energy and fuel prices will continue to push upwards, but given the high volatility that characterizes them these days, On the other hand, the seasonal index rose 0.6%, less than the general index rose and if the picture repeats itself next month, the index may surprise downwards.
“Even if the interest rate rises next month, it will remain very low”
“Since the index has surprised (again) upwards, it is supposed to have adverse effects on unindexed bonds (along the entire length of the curve), what’s more the yields on Treasury bonds have risen, recently. On the other hand, index-linked bonds (in the short part of the curve) are rented out in the short term. It should be noted that in the US the consumer price index rose 7.9% in the last 12 months (7.5% + in the 12 months to January); the index excluding food and energy there rose 0.5% in February. In February, the general index in the United States rose 0.8%, so that the gap widened again. At the same time as publishing its own forecast).
“The interest rate announcement is scheduled for April 11 and will therefore be published before the March index data, which could actually have influenced the Bank of Israel’s considerations due to its great importance. This will complicate the Bank of Israel’s work If the interest rate rises next month, it will remain very low, certainly given the inflation rate and it will be no less important to receive signals from the Bank of Israel regarding the route later on. Overall, the Bank of Israel is very attentive to what is happening overseas At the local level it will take into account that inflation has risen; Its level is still lower than in the US, but it will not ignore the continued rise and indications of further rises in the coming months. “Perhaps even more than once) during the second half of the year increased following the data. However, the interest rate policy will continue to be ‘data dependent’ and dollar purchases will continue from time to time.”