August Inflation Expected to Rise, Ending Price Drop Streak

Israel's Consumer Price Index (CPI) for August is projected to increase by 1%, halting a period of declining prices. This rise is primarily attributed to a significant jump in gasoline prices, which increased by 61 agorot per liter. While a subsequent reduction in excise tax in early September will lower gas prices for the next two months, this will only affect the September CPI, not the August figure. The price for a liter of gasoline is now set at 7.75 shekels.

Analysts anticipate the September CPI to be negative, ranging from a 0.1% to 0.2% decrease. However, the August index is expected to see increases in transportation, vacation, and communication costs, as well as expenses related to the return of students to school.

Following the August CPI increase, the annual inflation rate is forecast to reach 1.8%, with the full year expected to close at a 2% price increase. This uptick in inflation will likely prevent Bank of Israel Governor Professor Amir Yaron from further reducing the interest rate, which is expected to remain at 3.25% annually.

The article also touches upon the broader economic context, including the impact of global energy prices, influenced by the conflict in the Middle East and potential disruptions in the Bab al-Mandab strait by the Houthis. This has led to a rise in oil prices to $107 per barrel and a weakening of the shekel against the dollar, reaching a two-month low of 3.06 shekels.

Economists like Jonathan Katz, Chief Economist at Leader Investment House, suggest that continued interest rate reductions are uncertain. He points to local political uncertainty and rising global bond yields as factors influencing long-term indexed bonds, making inflation-linked instruments more attractive amidst concerns of rising global commodity prices.