Inflation in Israel slowed more than expected last month following a record run of interest-rate hikes from the central bank, potentially providing a boost to the shekel.
(Bloomberg) — Inflation in Israel slowed more than expected last month following a record run of interest-rate hikes from the central bank, potentially providing a boost to the shekel.
Consumer prices rose an annual 4.2%, compared with 4.6% in May. The median estimate was 4.4%, according to a Bloomberg survey of economists. Only one of 15 predicted inflation would decelerate as much as it did.
Prices were unchanged month-on-month, the lowest figure for that reading since August last year.
The shekel strengthened for a fourth day running on Friday, taking its gain this week against the dollar to 2.3%. It’s still down 2.7% this year, making it among the worst performers among a basket of expanded major currencies tracked by Bloomberg.
The Bank of Israel, like other central banks across the world, began hiking rates in early 2022 to counter quickening inflation. It’s raised them from near zero to 4.75% in that period. Yearly inflation is now inching down to the government’s target of 1% to 3%.
At its last meeting on Monday, the central bank’s monetary committee held its benchmark rate steady, ending a run of 10 straight hikes. But in what Goldman Sachs Group Inc. called a “hawkish hold,” it warned it could further tighten policy.
Still, Bank Leumi Le-Israel BM, Israel’s biggest lender by assets, says inflation is probably past its peak.
“The interest rate is expected to start falling in early 2024, as long as the exchange rate does not return to a relatively rapid course of devaluation,” said Gil Bufman, Bank Leumi’s chief economist.
Housing prices continue to rise quickly. In June, rent for tenants renewing a contract increased by 3.9% year-on-year, and for new tenants jumped up 9.8%.
“It seems like this is the sole component driving inflation these days,” said Ronen Menachem, chief markets economist at Mizrahi Tefahot Bank.
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