While the world has already begun to see the light at the end of the tunnel and inflation has begun to fall, Israel is still not there. Last week, the Consumer Price Index (CPI) was also published in the US, which fell to a two-year low of 4.9%, after peaking at about 10%.
For us, the CPI for April surprised to the downside, increasing by double the previous forecasts, while the annual inflation rate simply refuses to decline and remains at 5 percent over the past 12 months, while forecasts spoke of moderation to 4.6 percent.
Bank of Israel Governor Prof. Amir Yaron, who apparently surprised himself last night by the dismal data, has every reason to feel disappointed: the policy of raising the interest rate is not having as much effect as he would like. Had analysts' predictions come true, he could have taken his foot off the gas and settled for one last rate hike next week, much like his overseas counterpart, Jerome Powell.
But forecasts are separate from reality: inflation is still here and it is particularly "sticky." This, of course, even before all the recent price increases took effect. This means that as of today, it is not at all certain that the Bank of Israel's interest rate increases will stop here. It is also important to add that the level of unemployment in the economy remains very low, which adds to wage pressures, and as a result to inflationary pressures. And of course, the depreciation of the shekel makes it very difficult to lower inflation.
If, prior to the publication of the CPI data, the interest rate market gave a 70 percent probability that the interest rate would be increased by a quarter of a percentage point next week (that is, there was a reasonable possibility that the interest rate would not rise at all), this morning it can already be assumed that this probability will jump to 100 percent.
The government has something to do
The item that surprised most analysts was the price of travel abroad, which usually rises during Passover but jumped by almost 9% this year, compared with expectations for an increase of about 5%. Experts attribute this increase to the sharp depreciation of the shekel in recent months, against the background of the political instability surrounding the legal reform.
So have the horses already escaped from the stable? Fortunately, the answer is no. Although the CPI for May is also expected to be high due to the wave of price increases in the economy, there are quite a few things that the government can do to balance the picture and support the Bank of Israel's policy.
President of the Manufacturers Association and Chairman of the Presidium of Employers and Businesses, Dr. Ron Tomer, suggests that Prime Minister Netanyahu meet his commitments and freeze the generators of inflation. "The prime minister promised during the election period to lower the engines of price increases, including municipal taxes, water and electricity, but in practice the move was not completed," Tomer claims.
Calls on the government to reduce costs. Ron Tomer, President of the Manufacturers Association, Photo: Oren Ben Hakon
"The result is an increase in the burden on businesses and the high index, which came out twice as much as forecasts, and therefore I call on the government to keep its promise and act immediately to reduce costs, which make it difficult for both citizens and businesses and industry in Israel. Systematic action must be taken to reduce the cost of production, and to prevent the spiral that causes price increases."
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