Israel’s unemployment rate was 3.1% in August, the lowest since the Central Bureau of Statistics started to publish monthly figures in 2012 (before that, unemployment figures were released quarterly). The August rate is down from the 3.4% rate in July, and it would appear that the Israeli labor market is tighter than ever.
The problem with a tight labor market is that it puts upward pressure on wages, which could lead to a rise in inflation. The Bank of Israel has stressed that this situation fuels inflation, and has expressed the need for a degree of softening in the labor market if inflation is to be brought within the target range of 1-3%.
"A decline in the seasonally adjusted unemployment rate from 3.4% to 3.1% further strengthens the labor market," United Mizrahi Tefahot Bank chief markets economist Ronen Menachem told "Globes". Menachem stressed that the economy was in effect at full employment, and that this was no less important a factor for interest rates than the higher than expected inflation reading for August.
In addition, Menachem explained, other metrics in August, such as the rising employment rate, continue to indicate a high level of economic activity. "The rate of participation in the civilian workforce didn’t fall, which shows that people are optimistic about finding work, and that employers, who are still coping with many unfilled jobs, have a high capacity to absorb workers," Menachem said.
The upward pressure on wages is evidenced by the 6% year-on-year rise in the average wage in figures for July, released by the Central Bureau of Statistics at the beginning of this month.
The unemployment figures published yesterday come on top of the Consumer Price Index reading for August published on Friday, which was higher than analysts had forecast, and showed an annual inflation rate of 4.1%, strengthening expectations that in its next interest rate decision, in a month’s time, the Bank of Israel will raise its rate once more, from the current 4.75%, to 5%.
Published by Globes, Israel business news - en.globes.co.il - on September 20, 2023.
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