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Did the index go down? The interest rate will continue to rise - voila! Of money

2022-09-15T21:33:26.742Z


Although the August index beat the forecasts and fell by 0.3%, but due to global developments, the inflationary environment and price increases of food products after the holidays, the Bank of Israel will continue the trend


Did the index go down?

Interest rates will continue to rise

Although the August index beat forecasts and fell by 0.3%, but due to global developments, the inflationary environment and price increases of food products after the holidays, the Bank of Israel will continue the trend of raising interest rates: "The pressure for the depreciation of the shekel will continue"

David Rosenthal

16/09/2022

Friday, September 16, 2022, 12:14 AM

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On video: Rothschild protest against the cost of living (Photo: Uri Sela)

The expectation before the publication of the consumer price index was for a negative index in August, but the forecasts were for a decrease of 0.1% and not of 0.3.

"Our only mistake in the August index was in the food section, where we assumed it would increase by 0.9%, when in fact the section surprised when it decreased by 0.1%, which subtracted 0.16 NA from the forecast," says Guy Beit Or, the chief economist of Psagot.



But that the decrease does not really find Beit Or optimistic, especially when looking at the housing sector. "In our estimation, the annual growth rate in the housing section of the index will continue to climb during the coming year, especially in light of the high apartment prices in the economy which only continue to rise - housing prices increased by 1.3% following the increase of 2.0% from the previous month, and the annual rate accelerated from 17.8% to 17.9%.

Other notable sections were the apartment maintenance section which increased by 2.2% due to the increase in electricity prices, while furniture and home equipment also increased by 0.3%."



Dr. Gil Bafman, Leumi's Chief Economist, adds: "The price increases are extensive and the housing section, which is a large section, based indirectly and directly on the rent, continued and accelerated to an increase of 5.5% in the last year, this under the influence of the continued increase in apartment prices and also under the influence of an increase interest".

Prices continue to rise and real estate continues to be a significant factor in raising interest rates (Photo: Reuven Castro)

Guy Beit Or (Photo: Rami Zarnagar)

Dr. Gil Bafman (Photo: Oren Dai)

Beit Or indicates other sections that are not related to the world of real estate and have increased, such as education, culture and entertainment which increased by 0.4%, and the health section which increased by a similar rate. On the other hand, the prices of fuel and car oils fell sharply (-17.7%) and together with the foreign travel section "L (-3.8%) pushed the transportation and communication section down by 3.5%.

"This is a situation similar to the one that happened recently in the USA, in which the total index decreased due to the effect of the price of fuel, which was affected by the drop in the price of crude oil and the government's measures to temporarily reduce the excise tax, while the increase in the other components of the index continues and the inflationary pressures are significant," says Dr. Bafman.



"Bottom line, the August index is not expected to change anything as far as the Bank of Israel is concerned," says Beit Or, "General inflation and especially core inflation continues to be significantly higher than the target and the inflationary risks looking ahead continue to be high. We are informed almost every day in the economic press of significant price increases of the prices of food and other basic products which are expected to be reflected in the index during the coming months, probably after the Tishrei holidays.



"In addition, the housing market continues to heat up in terms of real estate prices, which means that the housing section of the index will continue to climb higher and exert inflationary pressure on the Israeli economy.

In addition to all of this, the renewed negative sentiment in the markets pushed for the depreciation of the shekel and we estimate that the pressure for the depreciation of the shekel will continue in the coming months, which is also expected to exert additional inflationary pressure on the Israeli economy.

In our estimation, the global developments, and especially the aggressiveness of the world's central banks, together with the environment of high inflation in the local market, the tight labor market (only yesterday we were informed that the number of vacancies has increased again) and Israel's solid fiscal situation will allow the Bank of Israel to continue to raise interest rates sharply.

In our estimation, the Bank of Israel will raise the interest rate by 75 basis points next month."

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Dr. Bafman agrees: "The September index is expected to be 0.0% to minus 0.2%."

The increase rate of the index in 2022 is expected to be about 5% and during the next 12 months the index is expected to increase by about 2.8-3.3%.

The Bank of Israel is expected to continue to raise the interest rate in the October decision at a rate not less than 50 bps and the interest rate is expected to continue to rise from the current level of 2% to approximately 3.25-3.50% in a year."

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Source: walla

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