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  • Inflation over the preceding 12 months is above the upper bound of the target, overshoots for a wide range of components, and is 5.4 percent. Inflation expectations for all terms are within the target range.
  • GDP grew in 2022 by an accelerated rate of 6.5 percent, and for the last 5 quarters its level has been above the pre-crisis trend line. GDP growth in the fourth quarter was impacted, to a large extent, by a transitory sharp increase in vehicle purchases at the end of 2022.
  • Economic activity continues to be robust. The labor market remains tight and is around full employment, but in recent months there has been some moderation in various employment data.
  • The scope of housing market activity is moderating. Home prices continued to increase, but for several months already at a more moderate pace. The number of home purchase transactions and the volume of mortgages taken out continue to decline. Rents continued their upward trend.
  • Since the previous policy decision, exchange rates have been characterized by considerable volatility—in the beginning of the intermeeting period the shekel strengthened, and later on the trend changed and the shekel depreciated by approximately 5 percent in the last month.
  • Growth forecasts worldwide were revised upward, but the growth rate in major economies continues to be moderate. The inflation environment continues to be high, but it can be seen that there is moderation in the headline inflation rate in many countries, but the moderation in core inflation is slower.


The Israeli economy is recording strong economic activity, accompanied by a tight labor market and an increase in the inflation environment. The Committee has therefore decided to continue the process of increasing the interest rate. The pace of raising the interest rate will be determined in accordance with activity data and the development of inflation, in order to continue supporting the attainment of the policy goals.


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The robust activity in Israel’s economy continues. The labor market remains tight and around full employment, although the most recent data indicate some moderation. The inflation rate is above the target and encompasses a wide range of components. Tighter monetary policy and the moderation in activity worldwide are expected to lead to some slowing in economic activity in Israel as well, alongside a slowdown in the inflation rate.


Since the previous policy decision, the CPI increased by 0.3 percent in each of the months December 2022 and January 2023. Inflation in the past 12 months is above the upper bound of the target range, at 5.4 percent (Figure 1). However, the inflation rate in Israel is lower than in most advanced economies (Figure 37). Net of energy and fruit and vegetables, inflation is 5.1 percent, as is the inflation rate after further netting out the effects of taxation and regulation (Figure 2). The pace of increase in the nontradable components in the CPI is 5.5 percent, and the growth rate of the tradable components in the CPI is 5.4 percent (Figure 3). One-year inflation expectations and forecasts from all sources increased, but are within the target range, in its upper part (Figure 6). Inflation expectations derived from the capital market for the second year and onward are also within the target range (Figure 7). The Committee assesses that the monetary tightening policies in Israel and worldwide, and the moderation of demand, act to moderate inflation. The extent of fiscal expansion and the development of wages will have an impact on the inflation rate’s convergence to its target.


According to the initial estimate of National Accounts data, GDP grew in 2022 by 6.5 percent, and for 5 quarters its level has been above the pre-crisis trend line (Figure 17). GDP per capita grew in 2022 by 4.4 percent. This growth is one of the highest rates among OECD countries.


In the fourth quarter of 2022, GDP grew, compared to the third quarter of that year, by 5.8 percent in annual terms. The above-forecast growth derived from an increase in private consumption, public consumption, investments, and from a decline in imports. In contrast, there was a marked decline in goods exports and services exports, which are still at high levels (Figure 18). This is reflected as well in similar trends in monthly foreign trade data (Figure 22–23). GDP growth this quarter was impacted, to a large extent, by a transitory sharp rise in vehicle purchases at the end of 2022, which contributed approximately half of the fourth quarter growth. A year over year comparison of the fourth quarter of 2022 with the fourth quarter of the year before shows a lower growth rate, of approximately 2.7 percent.


Economic activity remains robust, but there are signs in the most recent data of some slowing in the growth rate. The aggregate balance of the Business Tendency Survey, conducted by the Central Bureau of Statistics, for January continues to indicate businesses’ positive assessments regarding their situation, but to a smaller extent relative to most months of 2022 (Figure 19). Credit card expenditure data remain in the environment of the long-term trend (Figure 21). The easing in the equipment and raw materials constraint reported by companies in the manufacturing and construction industries continues, due to the moderation in supply chain pressures. The level of the equipment and raw materials constraint in the manufacturing industry continues to decline but remains slightly higher than just before the COVID-19 crisis (Figure 25).


The labor market remains tight, but in recent months there has been some moderation in the various employment data. The employment rate for ages 15+ (61.1 percent in January 2023) is currently at a similar level to its pre-crisis level. Despite some decline, the employment rate among the prime working ages (25–64, 78.2 percent in December 2022), remains higher than its pre-crisis level. The unemployment rates among ages 15+ (4.3 percent, January 2023) and among the prime working ages (3.7 percent, December data) are relatively low, but they increased compared to the low level in June 2022 (Figures 26–27). In parallel, the job vacancy rate, which reflects demand for workers, declined moderately in most of the previous months. Despite this decline, in January it remains at a high level (Figure 28). Based on the Business Tendency Survey of the Central Bureau of Statistics, in January there was some increase in businesses’ expectations of expanding their workforce (Figure 20). The real wage per employee post declined slightly but remains near the trend line (Figure 29).


The scope of housing market activity is moderating. Home prices increased in the past 12 months by 17.1 percent (Figure 12), a high pace compared to that of recent years, but the most recent data show moderation in the rate of growth. The decline in the scope of transactions and in mortgage volume continues; in January a total of NIS 6.4 billion in mortgages was taken out, about half the amount recorded a year ago (Figure 13). Rent prices increased by 0.7 percent in January. The housing component in the January CPI continued increasing, at 6.6 percent in the past year.


In the domestic capital market, equity indices are at a level similar to that of the beginning of the year, reflecting underperformance compared with equity indices worldwide. Long-term government bond yields are at a similar level to that in the beginning of the reviewed period. Corporate bond yield spreads were stable (Figure 14). According to the Business Tendency Survey of the Central Bureau of Statistics, the difficulty in obtaining credit of various businesses continues to be at a relatively low level (Figure 15).


In the reviewed period, the shekel weakened by 1 percent against the dollar, by 2 percent against the euro, and by 1.3 percent in nominal effective exchange rate terms (Figure 8). Exchange rates were characterized by considerable volatility in this period—in the beginning the shekel strengthened, and subsequently the trend changed and the shekel depreciated by about 5 percent in the past month.


Worldwide, growth forecasts in the period reviewed were revised upward as a result of a decline in concerns of an energy crisis in Europe, China’s reopening after lifting the COVID-19 limitations, and better than expected data on activity in the US. These developments increase the probability of a “soft landing” worldwide. However, the growth rate in major economies remains moderate. The IMF and investment houses revised their growth forecasts upward for the various blocs (Figure 30), after a prolonged period of downward revisions in forecasts. Purchasing Managers Indices in advanced and emerging economies increased, with the index for emerging economies in the environment indicating economic expansion, but for advanced economies still indicating a slowing in the pace of activity (Figure 31). The easing in supply chains continues, with a decline in shipping prices worldwide. World trade data for November 2022 indicated a sharp decline against the background of the outbreak of COVID-19 that occurred then in China. In addition, the component of orders for exports in the Purchasing Managers Index, which serves as a leading index for world trade volume, indicates that in January as well the scope of world trade activity remained relatively low. Prices rose on major equity indices worldwide (Figure 39). For long-term government bond yields the trend was mixed, with a slight increase in yields in the US and Germany. Oil prices remained essentially unchanged.


The inflation environment worldwide remains high but there is a trend of moderation in many countries. With that, in core indices the trend is mixed (Figure 34). Interest rate increases continue worldwide but the pace is moderating. In the US, fourth quarter 2022 growth was 2.9 percent, above analysts’ forecasts. The CPI declined in January to 6.4 percent, a moderate decline relative to analysts’ forecasts. The US Federal Reserve continued to slow the pace of interest rate increases and increased the interest rate in its most recent meeting by 25 basis points. In the eurozone, inflation moderated to a rate of 8.5 percent in January, a sharper decline than analysts’ forecasts, but core inflation continued to increase. The ECB increased the interest rate by 50 basis points and the ECB Governor assessed that in March the interest rate would be increased by an additional 50 basis points.


The minutes of the monetary discussions prior to this interest rate decision will be published on March 6, 2023. The next decision regarding the interest rate will be published at 16:00 on Monday, April 3, 2023, followed by a press briefing with the