Crisis in the economy (Shutterstock photo)
Bank Leumi estimates that today inflation in Israel will converge to the goal of price stability, i.e. a range of 1% to 3% towards the end of next year. At the upcoming meeting of the Bank of Israel’s monetary committee, Belaumi estimates, the interest rate will rise in the range of 0.5% to 0.75%, with the differences of opinion in the committee supporting the easing of monetary tightening up the road.
The consumer price index rose in September at a rate of 0.2% since this is the same monthly rate of increase as in September 2021, the rate of increase in inflation (in a moving annual window) remained unchanged at the level of 4.6%, which still reflects the highest actual inflation environment since 2008 .
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The main items that contributed to the increase in the index in September are: clothing and footwear and fruits and vegetables – this is in contrast to the seasonal decrease that usually characterizes them in the months of September; Health – against the backdrop of rising prices for medical services and insurance; and car insurance – which has seen a significant increase in price in recent months (at a double-digit annual rate).
The increase in insurance premiums is due, among other things, to the return to normality after the Corona period (in terms of the volume of accidents, car thefts, etc.), as well as the linking of insurance prices to the Consumer Price Index, as well as due to the increase in car prices. A development which contributed to the rise of the index in the last 12 months. On the other hand, decreases were recorded in food prices due to the promotions for the Tishrei holidays. However, now, after the end of the holiday period, price increases are planned among manufacturers and importers of food products.
“Inflation in Israel remains high compared to the last decade, but it is significantly lower compared to most developed countries (inflation of 10.3% in August in the OECD average)” says Leumi’s capital market division. “In our estimation, in the next 12 months inflation is expected to amount to about 3.6% and return to the price stability target range (1%-3%) until the end of 2023.
“The prices of the products are in a real moderating trend, this is, among other things, as a result of the effect of the drop in crude oil prices in the world; a certain easing of the pressure in the global supply chains; a certain discounting of the global transport prices from record levels; lagging effects of the exchange rate of the relatively strong shekel; and more. On the other hand, service inflation is accelerating, this against the background of strong local demand, a development that supports further monetary reduction on the part of the Bank of Israel, which aims to bring the real interest rate to a positive environment as soon as possible.
“Regarding the upcoming decision of the Bank of Israel, we estimate that an interest rate increase of 50-75 basis points is expected to a level of approximately 3.25-3.50%. By the time of the decision, a number of data are expected to be published that will have a great deal of weight in determining the amount of the increase, primarily the bank’s interest rate decision The US Federal Reserve, the Consumer Price Index for the month of October and the publication of the first estimate of Israel’s national accounting data for the third quarter of the year.
“We note that the summary of the discussion for the latest interest rate decision shows that five members of the monetary committee voted in favor of an increase of 0.75% percentage point and one member voted in favor of a more moderate increase of 0.5%. That is, the decision was not made unanimously — for the first time since the interest rate increase process began — Which may hint at a possible slowing down of the rate of interest rate increases in the next meetings. Looking ahead, we estimate that during the first quarter of 2023 the Bank of Israel interest rate will reach a level of approximately 3.75%, and will stabilize at this level during the year,” Baloumi concludes.
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