August Inflation Surge Expected to Reach 1%, Driven by Fuel and Travel Costs
Israel's inflation rate is projected to surge in August, with the Central Bureau of Statistics expected to report a monthly consumer price index increase of 0.8% to 1%. This significant monthly rise is anticipated to halt the recent trend of moderating inflation. Consequently, the annual inflation rate is forecast to climb from 1.5% to approximately 1.6%-1.8%, compared to a 0.7% increase in August of the previous year.
A primary driver of the expected price hike is the cost of fuel, which saw a 61 agorot increase per liter of 95-octane gasoline at the beginning of August. The transportation and communication sector is predicted to experience a rise of about 3.9%, largely due to higher fuel prices.
Seasonal factors related to the peak summer holiday season are also contributing significantly. International flights and accommodation costs are expected to increase by over 8% due to high demand, while domestic activities, attractions, and family entertainment will likely see a rise of around 1%. Additionally, housing costs, particularly rents, are projected to increase by 0.8%, and food prices by about 0.3%.
This sharp increase follows two months of lower inflation, with June's index remaining unchanged and July showing a 0.3% rise, bringing the annual rate to 1.5%. However, economists anticipate a rebound in September, with a projected negative index of around -0.2%, attributed to the seasonal drop in flight prices after the summer holidays and a decrease in domestic fuel costs.
Looking ahead, inflation is expected to stabilize around the Bank of Israel's target of 2% annually by the end of 2026. The anticipated August inflation data may temper optimism among borrowers, potentially reducing the likelihood of a fourth consecutive interest rate cut by the Bank of Israel's Monetary Committee on October 21. Factors such as ongoing geopolitical risks, potential shekel depreciation, global price pressures, rising oil prices due to tensions in the Strait of Hormuz, and the possibility of interest rate hikes in major economies are also influencing monetary policy decisions.
