Mizrahi-Tefahot warns: Energy prices will not hold up
Macro data shows that the rise in energy costs has barely trickled down to other inflation components, while consumers in Israel are in a particularly strained economic situation that limits market demand.
In a weekly review by Yoni Fanning from the Mizrahi-Tefahot trading room, macro data shows that the rise in energy costs has barely trickled down to other inflation components. Furthermore, this cycle finds consumers in a more strained and tight economic situation. Therefore, energy prices remaining at high levels for a long time is not sustainable in terms of market demand.
In Israel, there is an increase in energy prices, though Friday's trading saw a slight correction. The lack of escalation in the Gulf will likely lead to a further decline in energy prices. The local labor market, meanwhile, points to a continued slow return to routine in light of the decrease in the number of reservists. We are significantly far from pre-'Iron Swords' levels and still expect a moderation in the pace of wage increases, provided there is no significant reserve mobilization.
In the USA, even before the surge in oil prices, indicators from the beginning of July showed that companies and suppliers, including in the services sector, were demonstrating optimism. This increase in business activity is expected to generate additional price increases, beyond those coming from the energy sector. On the employment side, the labor market reached a certain stagnation at the end of July: employers are barely hiring new workers, but are also avoiding layoffs. It is very possible that the World Cup events have a central part in this picture.
In Europe, high interest rates are being maintained; the ECB, in particular, is refraining from raising rates, but it is anchoring expectations for a hike in the upcoming announcement.
On the other hand, global data shows that the March inflation wave was likely just a temporary event. In the UK, for example, price increases for goods in June were moderate, and the labor market is also gradually returning to routine. In fact, were it not for the unexpected surge in energy prices and global supply difficulties, inflation would have already returned to its normal level quickly.
In Japan, a slight acceleration in inflation is recorded during the month. But it is evident that this stems from the effects of the closure of the Strait of Hormuz, rather than a result of inflation becoming entrenched. A regulatory change in healthcare prices also supports this.
