The Central Bureau of Statistics will publish CPI data for April today (Monday) at 18:30. Most economists expect the CPI to increase by 0.4–0.5 percent, moderating the annual inflation rate to about 4.6–4.7 percent from the level of five percent recorded in the previous month.
Despite the expected moderation in the annual rate of increase in the CPI, inflation in Israel remains high and is well beyond the Bank of Israel's target range of 1–3 percent.
It should be noted that the wave of price increases by many food suppliers in the economy still does not affect the CPI for April, and is expected to begin to have an effect starting with May data. However, the Bank of Israel's high interest rate, which rose to 4.5 percent within a year, is already making its mark, and therefore many economists estimate that inflation will return to the Bank of Israel's target range within a year from now.
Front of the Bank of Israel, photo: Oren Ben Hakon
CPI data published today will influence the Bank of Israel's interest rate decision next Monday, and as of today, most forecasts are for a further and probably recent increase in the interest rate from 4.5 percent to 4.75 percent.
In this context, the Bank of Israel's policy is largely influenced by the policy of the US Federal Reserve, which raised the federal funds rate by 0.25 percent last week and signaled that following the moderation of inflation, this is probably the last increase.
Psagot Investment House building in Tel Aviv, photo: Yehoshua Yosef
"The Bank of Israel does not have the privilege of clearly announcing that it is halting interest rate increases," says Psagot Investment House's chief strategist, Uri Greenfeld. "It is true that according to our assessments, the CPI for April is expected to increase by 0.4 percent, which will indeed lower the annual inflation rate to 4.6 percent. However, the downward trend in inflation in Israel is still relatively fresh, and it is difficult to implement such a fundamental change based on a process that lasted only three months."
"Moreover, in light of the wave of price increases in May, the Bank of Israel will probably prefer to wait and see if this wave breaks relatively quickly or turns into a tsunami that will push inflation back upward," Greenfeld adds. "Therefore, our assessment is that the Bank of Israel will prefer to raise the interest rate by another quarter of a percentage point, and more importantly, to maintain ambiguity regarding the future in order not to create too strong expectations to halt the process."
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