Israel's Consumer Price Index (CPI) for May will be published tomorrow and the outlook is not optimistic. Analysts agree that the consumer price index rose by 0.5%-0.6% in May, bringing the inflation rate over the past 12 months to 3.1%-3.2%. This will be the first time this year that inflation will rise again above the 3% upper limit set in the Bank of Israel's annual target range.
This is a worrying trend that seems likely to continue. Analysts believe that inflation will continue at 3% and even higher throughout 2024, and some of the more stringent analysts even see inflation rising to 3.4%.
One element that may complicate the situation is traveling abroad. “There is a big question mark over the flights component, due to the fact that the measurement method has been changed recently,” Modi Shefrier, chief financial markets strategist at Bank Hapoalim, said in his latest survey. “There is usually a decline in May, but this is the time when There is great uncertainty.”
Shaffer added that further increases in the prices of food, housing, education and even clothing and shoes are expected. The May index is considered seasonally high, according to him, but even in the June index forecast, inflation is still above the stability target.
If inflation declined in the first months of the war as a result of its effects, the trend has now reversed. One reason for this is that shipping rates, which have jumped by tens of percent in the past few weeks, and, Shafir said, have risen by 74 percent since the beginning of May. This is the global average, and shipping rates to Israel have increased at an even greater rate.
Wages cause inflation
Another factor that triggers inflation is the tight labor market and the rate of rising wages. “The average wage in the economy rose by 9% in April (compared to the previous year) and by 7.2% for Israeli employees,” Leader Capital Markets wrote. “The shortage of Palestinian workers is putting upward pressure on wages, especially in the construction industry. In addition, there is Wage increases in most sectors.
The commander continued: “The number of paid jobs in the economy decreased by 3% from April 2023 to April 2024, but for Israelis only (not including foreigners) the number decreased by only 0.8%. Part of the increase in wages is due to “excess” social security payments to soldiers Reserve (above basic salary) In April, the minimum wage rose by 5.5%, and this directly affects about 20% of all employees in the economy.”
What will the Bank of Israel do? Interest rate cuts do not appear to be on the horizon. After the latest decision, Governor Professor Amir Yaron said that monetary policy is at a sufficient level to curb inflation. But since then the inflation rate has risen, and at the same time the fiscal deficit has become higher than expected.
Published by Globes, Israel Business News – en.globes.co.il – on June 13, 2024.
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