main economic background data to the monetary committee ...€¦ · 1 main economic background data...

1

Main economic background data to the Monetary Committee’s Interest

Rate decision, February 26, 2018

2

The Monetary-Financial Environment

ס ועיבודי בנק ישראל"למ: מקור

SOURCE: Based on Central Bureau of Statistics.

-2

-1

0

1

2

3

% Figure 1: The Contribution of Main CPI Components to Annual Inflation

January 2014 - January 2018

Housing (25%) Communications (2.5%)Food (13.7%) Vegetables and fruit (2.9%)Energy (5.9%) Other Components* (50%)Overall CPI Inflation Target

* "Other components" includes Health; Education, Culture and Entertainment; Furniture and Household Equipment; Clothing and

Footwear; Miscellaneous; and the Dwellings Maintenance and Transport components minus the sub-components relating to

energy prices.

Temporary decline in annual inflation is expected

in the coming months.

Inflation is still being affected by the price

reductions initiated by the government.


SOURCE: Based on Central Bureau of Statistics and Bank of Israel.

-2.0

-1.0

0.0

1.0

2.0

3.0

%

Figure 2: The Consumer Price Index - Overall, and Excluding Energy,

Vegetables and Fruit and Administrative Changes

Annual change, January 2014 - January 2018

CPI excluding Energy, Vegetables and Fruit and government initiated price reductionsCPI excluding government initiated price reductionsOverall CPIInflation Target

0.6

0.4

0.1

Inflation in the prices of nontradable goods moderated

and inflation in the price of tradable goods increased.


SOURCE: Bank of Israel.

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

Tradable goods price index (36.6%)

Other tradable goods (91%)

Energy excluding electricity and household gas (9%)

Tradable goods index

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

Nontradable goods price index (63.4%)

Other nontradable goods (57.1%)Fruit and vegetables (4.1%)communication (3.9%)Housing (39%)Nontradable goods index

Figure 3: Rate of change over preceding 12 months, January 2015 - January 2018

One-year inflation expectations increased, but

remain below the target.



-1

0

1

2

3

Figure 4: One-Year Inflation Expectations from Various Sources*

Daily data, March 2017 - February 2018

Average According to the bank's internal interest rates Capital marketAverage forecasters' projections Inflation Target

** The series is the moving average of the last two weeks , after the 23.01.18 the data is daily data.

* Up to date as of Jan 23, 2018

Previous

interest rate

decision

Medium-range expectations also increased.



1.3

1.5

2.1

1.0

0

1

2

3

% Figure 5: Forward inflation expectations to various ranges

Seasonally adjusted daily data, March 2017 - February 2018

1-2 2-3 3-5 5-10 Inflation Target

* For instance, 3-5 year expectations are the expected yearly inflation from the end of the 3rd year until the end of the 5th year.

Previous

interest rate

decision

The shekel weakened since the last interest rate

decision. In recent days, the depreciation has halted.


SOURCE: Bank of Israel

3.3

3.4

3.5

3.6

3.7

3.8

3.9

4.0

4.1

4.2

4.3

4.4

4.5

75.0

76.5

78.0

79.5

81.0

82.5

84.0

85.5

87.0

88.5

90.0

03/16 05/16 07/16 09/16 11/16 01/17 03/17 05/17 07/17 09/17 11/17 01/18

NIS Index Figure 6: The NIS/$, NIS/€, and Nominal Effective Exchange Rates

Jan. 1/2010 = 100, March 2016 - February 2018

Nominal effective NIS/€ NIS/$

Previous

interest rate

decision

Government bond yields in Israel increased less

than in the US, and similar to Europe.


SOURCE: Bloomberg.

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

03-16 05-16 07-16 09-16 11-16 01-17 03-17 05-17 07-17 09-17 11-17 01-18

%

Figure 7: Nominal Yields on 10 year Sovereign Bonds in Israel, US, and

Germany

March 2016 - February 2018

Israel US Germany

Previous

interest rate

decision

Recent data show a decline in home prices.


SOURCE: Central Bureau of Statistics

95

100

105

110

115

120

125

Housing index Home prices

Figure 8: Home Prices vs. the CPI Housing Index (based on residential rents)


The pace of new mortgages has stabilized.



0

1

2

3

4

5

6

0

1

2

3

4

5

6

7

8

01

/11

04

/11

07

/11

10

/11

01

/12

04

/12

07

/12

10

/12

01

/13

04

/13

07

/13

10

/13

01

/14

04

/14

07

/14

10

/14

01

/15

04

/15

07

/15

10

/15

01

/16

04

/16

07/1

6 1

0/1

6 0

1/1

7 0

4/1

7 0

7/1

7 1

0/1

7 0

1/1

8

% NIS

billion Figure 9: New Mortgages and the Weighted Interest Rate


Total of new mortgages in the current monthSeasonally adjusted volume of new mortgagesWeigheted real interest rate (right scale)

Note: In order to calculate the real weighted interest rate, inflation of 2 percent is deducted from the unindexed components.

12

Real economic activity

The first estimate indicates solid GDP growth in

the fourth quarter.


SOURCE: Central Bureau of Statistics and bank of Israel.

4.3

6.9

3.6

2.3

3.7

3.2

1.9

6.2

2.4

0.1

1.5

4.2 4.5

5.4

4.1

4.8

1.1

3.1

3.9 3.6

3.3 3.4 3.5

0

1

2

3

4

5

6

7

8

9

10

% Figure 10: GDP Growth in Israel

Quarterly in annual terms, 2013 - 2017

Research Department's

forecast of annual growth

2017:Q4 2017:Q3 2017:Q2 2017:Q1 2017 2016 2015 Period

3.6 3.9 3.1 1.1 3.3 4 2.6 Gross Domestic Product

3.7 4.5 3.4 0.2 3.5 4.2 2.7 Business product

1.3 6.9 5.8 1.1 3.3 6.1 3.9 Private consumption

4 6.7 4.4 4.3 4.4 4.9 4.3

of which: private consumption excluding

durable goods

11.5 3.3- 2.9 7.2 4 4 3.8 Public consumption (excl. defense imports)

5.3- 1.3 7.1 4.6- 2.8 11.2 0.9- Fixed capital formation excl. ships and aircraft

4.3- 4.7 11.6 6.8- 3.5 12.9 2.1-

of which: Investment in industries excl. ships

and aircraft

10.2- 5.2- 2.4- 2.8 1.3 8.1 1.5

Investment in residential

construction

9.3 7.4 7.7 4.8 5.3 1.1 0.9-

Exports (excl. diamonds and startup

companies)

0.9 4.8 4.1 1.8 2.5 1.2- 3.3- of which: Goods exports excl. diamonds

19.1 5.3 14 11.3 8.7 4.2 2.8

Services exports excl. startup

companies

9 16.3 8.1 1.7- 6.1 8.1 1.6

Civilian imports (excl. ships, aircraft and

diamonds)

Growth in 2017 was more balanced, led by

private consumption and exports.

Figure 11: Growth Rates of the Components of the National Accounts, 2015–2017

SOURCE: Central Bureau of Statistics.

The quarterly rates of change are

seasonally adjusted in annual terms.

Services exports led export growth.



0.90

0.95

1.00

1.05

1.10

1.15

Figure 12: Export Data Taken from the National Accounts

Seasonally adjusted quarterly data, Real index: 2016 average=1.0,

Q4 2014 – Q4 2017

Totel exports (excl. startups and diamonds) Services exports excl. startups Goods exports excl. diamonds

The Composite State of the Economy Index

indicates continued solid growth.



-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Figure 13: The Composite State of the Economy Index

Seasonally adjusted monthly data, January 2014 - January 2018

The labor market is tight and in a full

employment environment.



3.4

3.8

4.2

4.6

5.0

5.4

5.8

6.2

70

72

74

76

78

80

82

84

% %

Figure 14: The Unemployment, Employment and Participation Rates

Among the Primary Working Ages (25-64)

Seasonally adjusted monthly data, January 2013 - December 2017

Employment rate (left scale) Participation rate (left scale) Unemployment rate (right scale)

80.4

77.6

3.5

Following a prolonged increase, the pace of wages

increases has moderated.


SOURCE: Central Bureau of Statistics and Bank of Israel calculations.

0

1

2

3

4

5

6

%

Figure 15: Nominal Wages per Employee Post

Seasonally adjusted, moving 6-month average, rate of change compared

with the same period in the previous year, January 2013 - November 2017

Business sector Total Public services

3.5

2.9

2.7

Increasing ratio between number of job vacancies

and the number of unemployed.



40

50

60

70

80

90

100

110

120

150

170

190

210

230

250

270

Number of job vacancies

Number of unemployed

Figure 16: Number of Job Vacancies and Number of Unemployed

Thousands, seasonally adjusted, January 2012 - December 2017

20

The global economy

The IMF has revised its growth forecasts upward.


SOURCE: IMF

1.5 1.8

0.9

6.7

3.2

4.4

2.3

US Europe Japan China World Emerging World Trade

Figure 17: The IMF Growth Forecast

October 2017 - February 2018

2016 2017 forecast 2018 forecast

* The numbers in parentheses show the previous forecast.

2.2

2.7

(2.3)

2.1 2.2

(1.9)

1.5 1.2

(0.7)

6.8 6.6

(6.5)

3.6

3.9

(3.7)

4.7

(4.6)

4.9 4.7

(4.2)

4.6

(4)

Momentum in world trade is maintained.


SOURCE: Bloomberg.

-1

0

1

2

3

4

5

6

7%

Figure 18: Annual Rate of Change in Global Trade in Commodities

January 2013 - December 2017

World Emerging economies Advanced economies

4.4

4.6 4.7

The “correction” in the global stock markets has

been halted for now.


SOURCE: Bloomberg.

90

100

110

120

130

02/17 03/17 04/17 05/17 06/17 07/17 08/17 09/17 10/17 11/17 12/17 01/18 02/18

Figure 19: The Major Global Equity Indices

February 2017 - February 2018

S&P 500 Nikkei 225 MSCI EM EuroStoxx 50

Index:

Feb 23/2017=100

Inflation remains below the central bank targets.

Inflation in Israel is low relative to the major economies.


SOURCE: Bloomberg.

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Figure 20: Inflation in the Major Economies and in Israel


US - CORE PCE Eurozone Japan Israel Inflation target in the major economies

%

1.5

1.3

0.1

1.4

* For Japan, net of the effect of the VAT increase in 2014.

** The target in the US relates to CORE PCE.

%

Oil prices are volatile after a prolonged increase.


SOURCE: Bloomberg.

80

90

100

110

120

130

140

02/17 03/17 04/17 05/17 06/17 07/17 08/17 09/17 10/17 11/17 12/17 01/18 02/18

Figure 21: Indices of Commodity Prices

February 2017 - February 2018

Commodities excluding energy Brent crude oil

Index:

Feb 23/2017=100

Previous

interest rate

decision

The interest rate increases in the US are expected

to continue.


SOURCE: Bloomberg.

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

ECB Japan US (mid-range interest rate) Israel

%

1.375

0.1

-0.1

-0.4

Figure 22: Interest Rates of the Major Central Banks and the Bank of Israel


main economic background data to the monetary committee ...€¦ · 1 main economic background data...

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