The shekel, Iran, and the cost of living: Mizrahi Tefahot Bank presents a forecast for Israelis
The bank's chief strategist, Yoni Fanning, analyzes the impact of political reports on the exchange rate, identifies sectors suffering from a labor shortage, and warns of economic consequences.
Yoni Fanning, chief strategist at Mizrahi Tefahot Bank, conducted a weekly economic review addressing the impact of reports regarding a deal between the USA and Iran on the local economy, the recovery in the construction sector and service exports, US labor market data, and more.
"Israel: The frequent reports about a deal with Iran and their absence lead not only to a change in global oil prices, but also affect the local premium, as this is reflected in the shekel's exchange rate, and this phenomenon is often reinforced by negative transmission from stock indices in the USA."
Despite the moderation in inflation expectations, indicators of local activity look particularly lively ahead of the summer, including a jump in the number of people traveling abroad and an increase in the number of flights. In our assessment, the significance is inflationary in the short term, but deflationary around September-October.
At the same time, the stabilization of local activity brings optimism to local businesses, according to the business trend survey. At this stage, it seems that the number of workers from abroad is helping to fill the gap in the construction sectors. But in general, the shortage of workers in the economy is expected to lead to inflationary pressures in the service sectors.
Service exports also continue to be very strong into May. Part of this is the result of startup exports that were delayed in recent years, but a significant part is growth that looks more organic.
In the USA, labor market data continue to point to moderate demand and supply. As of this moment, the impact is moderating in terms of wages, certainly in relation to what could have been expected in the current inflationary environment. But in light of the unusual decline in the participation rate, we assess that this could easily move in any direction.
The American credit consumption tap opened slightly in May, despite the high interest rate environment. As long as this continues, we estimate that it could also replace lower receipts from work.
