US Inflation Data May Delay Israeli Interest Rate Cut
Translated & summarized from Ice by baba
New US inflation data showing a 0.4% rise in October, exceeding forecasts, may push back potential interest rate cuts by the Bank of Israel. The core CPI also rose more than expected, fueling concerns about persistent inflation and increasing the likelihood of a Federal Reserve rate hike. This contrasts with Israeli market expectations for a rate cut, with economist Yoni Fanning suggesting the US action would be a significant counterweight. Future moderation in US gasoline prices could eventually ease inflationary pressures.
The story in 5 lines · by baba
- US October inflation rose 0.4%, exceeding forecasts and potentially delaying Israeli interest rate cuts.
- Core US CPI also rose unexpectedly, increasing the likelihood of a Federal Reserve rate hike.
- Israeli market anticipates a rate cut, but US policy divergence may prevent it.
- Economist Yoni Fanning cited US rate hikes as a significant counterweight to Israeli cuts.
- Falling US oil and gasoline prices may moderate inflation in the coming months.
The possibility of an interest rate reduction in Israel may be receding following new inflation data from the United States. The US Consumer Price Index (CPI) for October rose by 0.4%, exceeding economists' forecasts of 0.3%. The core CPI also surprised upward, increasing by 0.3% monthly against an expected 0.2%. These figures intensify concerns about persistent inflationary pressures in the US, which could influence the Bank of Israel's decisions.
Yoni Fanning, Chief Strategist at Mizrahi Tefahot Bank's trading room, noted that while complete annual inflation data is unavailable due to a US government shutdown last year, the annual rate can be estimated. His calculation suggests an annual inflation rate of approximately 3.3%, lower than September's but still significantly above the Federal Reserve's 2% target.
Fanning explained that the 0.3% rise in core CPI reflects the continued impact of recent energy price increases spreading to other sectors of the US economy. This means the effect is no longer confined to fuel and electricity but is also evident in broader inflation measures. Consequently, market expectations are now nearly 100% for another Federal Reserve interest rate hike in early December.
In contrast, the Israeli market is pricing in a potential rate cut by the Bank of Israel either in late November or in January 2027. Fanning believes the potential divergence in policy between the two central banks is a significant factor against an immediate rate cut in Israel. He emphasized that while other uncertainties exist, a further US rate hike would act as a "very significant counterweight" to any parallel rate reduction in Israel.
Looking ahead, Fanning identified a factor that could moderate US inflation. He pointed out that average gasoline prices in October were around $4.30 per gallon, similar to September. However, with oil prices recently moderating to about $87 per barrel, gasoline prices could fall to approximately $3.70 per gallon, impacting future CPI reports. Additionally, as the energy price surge began around March, its influence on the annual inflation calculation is expected to shift in the coming months, potentially bringing overall inflation closer to the core rate.
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