The huge aid package is expected to help not only the American economy, which will grow by more than 6 percent this year, but the entire world. According to OECD estimates, the program is expected to increase GDP in Canada by over one percent, GDP in Mexico by three-quarters of a percent, GDP in the eurozone by half a percent and other US trading partners will also benefit. The aid program is also higher than expected in the confidence index Consumers and inflation expectations.
We estimate that in the interest rate decision tomorrow (Wednesday) the Governor of the Central Bank will continue to emphasize its commitment to leave the interest rate unchanged for a long time and reiterate that the imminent rise in inflation is due to one-time factors.
The high index joins the latest positive data and supports our assessment that the Bank of Israel will leave the interest rate unchanged in the upcoming interest rate decision.
The consumer price index for February rose 0.3 percent, above preliminary estimates and inflation in the last 12 months back to zero. An increase in the price of fuel and fresh fruit were the main contributors to the increase, but the main surprise (relative to our forecast) upwards was due to an increase in the price of clothing (as opposed to an expected seasonal decline) and a rapid increase in the price of recovery and recreation.
Having also seen a surprise in the upward index last month, we continue with a sequence of positive indices, March to May, which we believe will be higher than the normal seasonality. The March index will rise between 0.3-0.4 percent, due to the rise in the price of fuel and housing and they will be offset by the expected sales for Passover and the non-measurement of the travel component abroad. The April index is expected to rise at a similar rate with the Passover holiday prices Ours for the next 12 indices rises slightly to 1.0 percent, the forecast for the end of 2021 rises to 1.2 percent.
The high index joins the latest positive data and supports our assessment that the Bank of Israel will leave the interest rate unchanged in the upcoming interest rate decision and will continue to focus its activity on purchasing bonds and foreign exchange according to existing plans.
Apartment prices continue to rise. Despite an increase in supply – in our opinion this trend is expected to continue.
Although inflation in retrospect has returned to zero, house prices have continued to rise by almost one percent for the third month in a row and 4.3 percent in the last 12 months (until mid-January). This trend is expected to continue due to the recent steps of the government encouraging investors (reduction of the purchase tax), and the progress of the vaccination campaign, along with the Bank of Israel’s extensive measures (low interest rates, purchase of government bonds and outline mortgage deferral for difficult borrowers).
At the same time, the supply of apartments affected by the disruptions in the first closure continues to recover rapidly. Thus, construction starts recorded a recovery in the second half of 2020, with an emphasis on the fourth quarter when they rose by 7 percent (according to seasonally adjusted data) and are already similar to their level in the corresponding quarter in 2019.
It is also important to note that the rise in commodity and fuel prices over the past six months continues to raise the construction input index, with a 0.2 per cent rise in February (despite a continued decline in the wage rise in the industry), and a similar rise will be recorded in the next index.
And in the world
Unlike the US – we estimate that the Central Bank of Brazil will raise interest rates tomorrow (Wednesday) despite the deadly wave of morbidity.
Inflation in Brazil continues to rise consistently for the tenth consecutive month. But in February the rise was sharper than expected at 5.2 percent, the highest in about 4 years. As a result, the central bank is expected to raise interest rates this week by at least half a percentage point.
Inflation is also high in India, but pressure on the central bank will make it difficult for the bank to respond
In India, inflation rose again to 5 percent in February, higher than expected due to the surge in food and energy prices. The central bank has continued to miss the inflation target (4%) for more than two years but has refrained from raising interest rates in the face of government pressure and fears of damaging the stability of local banks. Right now, the weakness of the dollar in the world, given the huge expansions in the US is working in favor of India and reducing the pressures for devaluations that will require raising interest rates (as we have seen in Turkey), but the risk is rising.
Main points
In the country
The consumer price index for February rose 0.3 percent, above preliminary estimates and inflation in the last 12 months back to zero.
Apartment prices continue to rise, despite the increase in supply – this trend is expected to continue.
Data continue to be published indicating that economic activity rose rapidly in February.
In the world
The US president has signed a huge $ 2 trillion expansion plan. The plan will push U.S. growth this year toward 6 percent and add as a percentage to global growth.
Investors’ eyes will be on the US Federal Reserve’s interest rate decision tomorrow. In our view, the Governor of the Bank will continue to emphasize his commitment to leave interest rates unchanged for an extended period of time.
The central bank in the eurozone has announced that it will increase the pace of purchases in the coming months to prevent a rapid rise in yields. As a result, the gaps between German and US bond yields widened.
Inflation in Brazil continues to rise for the tenth month in a row, the central bank is expected to respond with a rise in interest rates tomorrow.
In India, too, inflation returned to rise but the central bank refrained from raising interest rates in the face of government pressure and fears of damaging the stability of local banks.