Israel's September CPI surprises downward as Mizrahi-Tefahot analyzes market resilience
Israel's September CPI fell 0.2% below forecasts, driven by lower travel and rent prices, while private consumption remains robust. Mizrahi-Tefahot Bank strategist Yoni Panning analyzes local economic resilience alongside US inflation pressures.
Israel's Consumer Price Index (CPI) for September delivered a positive surprise to the markets, recording a moderate decline of approximately 0.2% compared to early forecasts. In his weekly trading room review, Yoni Panning, chief strategist at Mizrahi-Tefahot Bank, analyzes the primary forces driving the local economy—ranging from plunging vacation and rent prices to the resilience of private consumption and looming inflation clouds in the USA.
The Drivers of September's CPI Surprise
According to Panning, the lion's share of the positive surprise in the September index stemmed from airline ticket prices and associated holiday costs, despite a record number of Israelis choosing to fly abroad during the period. However, Panning emphasizes that this is not merely a momentary seasonal effect, but also a structural shift in the rent price component, which is strongly felt both in expectations surrounding the effective end of the war and preparations for the opening of the academic year.
Alongside the encouraging index data, private consumption in Israel continues to demonstrate exceptional strength. End-of-period data from credit card companies, as well as retail chain sales figures, indicate that local economic activity remained very robust deep into August. Panning notes it will be interesting to see whether this purchasing wave maintains the same intensity following the end of the tourist season and the full return to routine.
Foreign Trade and Global Market Pressures
In the foreign trade sector, Israel's trade balance deficit moderated significantly in September following the surge recorded in August. Panning estimates this is largely due to one-off factors: fuel imports are expected to rise again next month, alongside a slightly delayed expansion in exports. Nevertheless, he outlines a global scenario that could shake up the exchange rate: "A global price drop resulting from the tapering of artificial intelligence capital expenditure (Capex) optimism, if and when it occurs, will have profound significance for the current account and consequently for the shekel. Conversely, this is likely to be preceded by a drop in stock prices, generating an opposing effect."
US Inflation and Fiscal Weakness
In the American arena, by contrast, price pressures remain persistent. The US CPI surprised slightly to the upside against overly optimistic analyst forecasts, with a similar trend recorded in the Producer Price Index. The primary increase stemmed from energy prices and diesel refining margins, though Panning warns that the unexpected rise in wholesale margins hints at potential pass-through that could drive up consumer prices in the coming months.
Concurrently, US fiscal data for September pointed to weakness, primarily on the government expenditure side ahead of the midterms. According to Panning's assessment, some improvement in these parameters is expected to materialize only around November.
