Harel Economic Review: Inflation Trends, US Fed Outlook, and Global Markets
Ofer Klein from Harel Insurance analyzes local and global economic trends, reviewing Israeli inflation forecasts, US Fed policies, and European bond yield spreads.
Ofer Klein, Head of Economics and Research at Harel Insurance and Financial Services, published his weekly economic review, addressing the hottest trends in the local and global economy.
"In Israel, the blue tax drives the indices rather than the overall picture. Due to the Sukkot holiday, there were no significant economic publications in Israel. We opened October with a surge in gasoline prices to a new high, only to receive news a few days later of another temporary reduction in the blue tax.
Frequent changes alter our forecast for upcoming indices, and we currently project a more moderate increase of about 0.3% in the October index alongside a downward bias, paired with a concurrent upward revision of the November index based on our assessment that the discount order will not be extended upon expiration. On an annual level, this does not change our inflation assessment of 2% over the next 12 indices.
Global Markets and US Inflation
The Federal Reserve can wait, but the bond market cannot. Recent US data bought the Fed some time. The employment report was weaker than expected, and the backward revision in the personal consumption expenditures price index presented a more moderate picture than known during the interest rate hike about three weeks ago.
The core consumer price index story involved the annual backward revision of the past five years, where July core inflation was revised downward more than expected to 3.0%. A significant portion of the correction stemmed from a change in the measurement of portfolio management services.
European Inflation and Yield Spreads
Inflation in the euro area rose to 3.8% in September according to the preliminary estimate. Most of the increase stemmed from the surge in energy prices, while core inflation rose at a more moderate rate to 2.5%.
It is important to note that bond yield increases are not distributed evenly. France stood out negatively, with the spread between its bond yields and those of Germany reaching its highest level since the debt crisis nearly 15 years ago.
