Leader Capital Markets Issues Weekly Economic Review on Inflation and Rates
Leader Capital Markets released its weekly economic review, analyzing moderating core inflation, a tight labor market, housing starts, and potential interest rate cuts.
Analysts at Leader Capital Markets, led by Yonatan Katz, have released their weekly economic review, highlighting key trends in inflation, the labor market, the housing sector, and monetary policy.
Inflation Trends and Interest Rate Outlook
August inflation data points to a further moderation in core inflation. Meanwhile, the labor market tightened in August with declines in both the unemployment rate and participation rate. Basic forces supporting the appreciation of the shekel have weakened slightly.
Following a drop in completed construction projects in the second quarter, an acceleration is expected in the second half of the year. Institutional investors reduced their foreign exchange exposure in July. The Federal Reserve raised interest rates with a slightly hawkish message, increasing the likelihood of another rate hike this year.
The inflation environment remains low and continues to moderate. The headline inflation rate remained stable at 1.5%, while core inflation slowed to 1.3% from 1.5%. Despite a sharp and surprising 8% drop in car insurance prices in August, the year-over-year change (10.7%) reflects structural reforms in the insurance sector.
Economic Activity and Labor Market Dynamics
The real economy continues to demonstrate strong activity. The monthly economic activity index rose by 0.9% in August (both monthly and on a three-month average basis). Credit card purchases grew by 2.0% in real terms, accompanied by an expansion in industrial exports and a tight labor market.
The unemployment rate dropped to 2.8% in July from 3.1%, alongside a decline in the participation rate to 61.8% from 62.2%. The ratio of job vacancies to unemployed workers rose to 1.11 in August from 1.01. The moderation of core inflation toward the lower bound of the target supports the possibility of an additional interest rate cut.
Current Account and Nvidia Exports
In the second quarter, the current account recorded a deficit of $0.5 billion, following a $0.8 billion deficit in the first quarter. While the goods and services surplus reached $7 billion in Q2, cross-border exports—primarily driven by Nvidia—swelled to $11.2 billion, compared to $8.9 billion in Q1 and $5.7 billion a year ago.
Although net exports are attributed to Israel, most of the capital does not physically arrive in Israel, aside from Mellanox employee salaries and over 1 billion shekels in local tax payments. The sharp increase in Nvidia exports is offset by retained earnings in the primary income account, leaving no net impact on the current account.
Housing Starts and Construction Data
In the second quarter, net housing starts reached an annualized rate of 65.6 thousand, totaling 70 thousand over the past year. Building permits reached 83.3 thousand annually. Completed construction remained lower at 61 thousand over the past year, with Q2 2026 recording a disappointing pace of only 53.6 thousand.
Overall, housing starts of approximately 70 thousand units annually are expected to comfortably satisfy current demand growth. Rent increases are projected at 2%, compared to 3% over the past year, reflecting stabilizing demographic pressures.
