Israel's Consumer Price Index (CPI) for January 2024, which will be published on Thursday, is expected to be low and likely hover between no change and a modest increase of 0.1% to 0.2% per month - which would bring Israel's annual inflation rate below the Bank of Israel's 3% target.
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A particularly low CPI could possibly help the Bank of Israel's Monetary Committee, headed by its governor Prof. Amir Yaron, to further cut the central bank's benchmark interest rate, despite international credit agency Moody's warning of the opposite.
The CPI is expected to be low even though local taxes rose by 2.68% and gas prices increased by 28 agorot (0.28 shekels/$0.075) in January. Additionally, price hikes were recorded among various consumer products, increases that were expected to heat up in February, during which electricity prices also rose by 2.6%.
Clothing and housing prices are expected to tick down in the January print, while food and transportation prices are anticipated to rise. The impact will also affect recent fluctuations both in price declines and in the increases in the price of fresh produce.
The January 2023 CPI went up by 0.3% - therefore any index that increases at a rate lower than this will reduce Israel's inflation rate toward the government's target for the entire year, standing at 1% to 3%, possibly allowing the Bank of Israel to cut its benchmark interest rate by 0.25 percentage points to 4.25%.
The decision on interest rates is expected at the end of February and would be influenced by several factors, including the hotter-than-expected inflation numbers in the United States, which were published last week, showing inflation still at a relatively high 3.1%.
Interest rates in the U.S. are not expected to come down due to the relatively high CPI.
In Israel, however, a reduction in interest rates is possible, and the Bank of Israel will have to consider several factors, including Moody's report criticizing the government and its handling of the economy, the fast-growing deficit that is expected to be particularly high this year (6.6%), foreign currency exchange rates and budgetary changes that could take place in the near future - such as canceling some of the measures affecting the public aimed at reducing the deficit.
"We expect a rapid increase in the construction costs index, due to the ongoing significant labor shortage and rising wages in the sector, as reflected in recent business trends surveys," Ofer Klein, head of the Economics and Research Department at Harel Insurance and Finance, said.
First published: 21:37, 02.14.24