Israel's Housing Prices Fall While Rent and Inflation Risks Rise, Impacting Economy and Tech Sector

In the latest episode of Calcalist's Money Engines podcast, economist and chief strategist Uri Greenfeld discussed Israel's June Consumer Price Index (CPI), which remained unchanged contrary to expectations of a 0.1% decline. This slight upward surprise highlights a significant shift in inflation risk forecasts. Annual inflation stands at 1.6%, near the Bank of Israel's target, with projections for the coming year ranging between 1.5% and 1.7%. Notably, the risk direction has reversed from downward to upward in recent months.

A key surprise in the CPI was a 0.7% monthly increase in housing rent, with rents for apartments changing tenants rising by 6.6% compared to previous contracts. Meanwhile, apartment prices have dropped by about 1% over two months and approximately 2% annually, with new apartments falling by 4%. The short-term inverse relationship between housing prices and rents is attributed to fewer transactions leading to more renters.

Additionally, data from the Central Bureau of Statistics revealed that about half of Israeli high-tech companies reported negative impacts from the strengthening shekel. Around 18% of non-exporting firms also experienced harm, indicating a secondary effect on local services and products. Some companies plan to absorb losses, while others intend to raise prices, including those serving only the domestic market.

In contrast, the U.S. saw a 0.4% CPI decline in June, exceeding expectations, with core inflation falling to 2.6%. The Producer Price Index also surprised markets. The Federal Reserve, previously expected to raise interest rates in July, now faces a roughly 90% probability of maintaining current rates.

The podcast episode covered topics including speculative attacks, Israel's inflation and housing market trends, the Bank of Israel's interest rate considerations, and U.S. economic indicators. It also invited listeners to join the Money Engines Telegram group for further discussion.