Israel's August Inflation Rises 0.7%, Below Forecasts, May Impact Interest Rates

Israel's Consumer Price Index (CPI) rose by 0.7% in August, according to data released Tuesday by the Central Bureau of Statistics. While this represents a significant increase, it was lower than economists' predictions, which generally ranged from 0.8% to 1%. The CPI does not include housing prices, only rental costs, which constitute 26% of the index and significantly influence inflation.

Despite the monthly rise, the inflation figures are considered encouraging compared to the past two years, especially in light of expectations that the war might severely impact the economy. Lower inflation, indicating a slower rise in the cost of living, generally increases the likelihood of an interest rate cut.

However, the Bank of Israel governor considers various factors beyond inflation, including the labor market's tightness and the geopolitical situation, before deciding on interest rates. Therefore, the current data does not guarantee a rate reduction in the upcoming decision.

Over the twelve months leading up to August, the CPI increased by 1.5%. Notable price hikes were observed in fresh vegetables (2.9%), transportation (2.7%), culture and entertainment (2.0%), and housing (0.6%). Conversely, prices decreased for fresh fruit (-2.0%), clothing (-0.8%), food (-0.5%), and home furnishings (-0.3%).

Rental prices saw a 2.6% increase for lease renewals and a 4.4% rise for new renters. The Bureau of Statistics noted these figures approximate the annual change in rent, as most tenants' rents remain fixed under contracts for the year, typically without indexation clauses.