Israel's Inflation Rises 0.7% in August, Delaying Interest Rate Cuts

Israel's Consumer Price Index (CPI) rose by 0.7% in August 2026 compared to July 2026, according to data released Tuesday by the Central Bureau of Statistics. This increase, while significant, was slightly lower than the 0.8%-1% increase predicted by most economists. The August figure mirrors the 0.7% rise seen in July.

Analysts and local capital markets now anticipate that the Bank of Israel will postpone its upcoming interest rate cut. 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 over the past two years are considered encouraging, especially given expectations of severe economic impact from the war. Lower inflation, indicating a slower rise in the cost of living, generally increases the likelihood of an interest rate reduction. However, the Bank of Israel governor also considers other economic factors, such as labor market tightness and the geopolitical situation, when making rate decisions.

Over the twelve months leading up to August 2026, the CPI increased by 1.5%. Notable price hikes were observed in fresh vegetables (up 2.9%), transportation (up 2.7%), culture and entertainment (up 2.0%), and housing (up 0.6%). Conversely, prices decreased for fresh fruit (down 2.0%), clothing (down 0.8%), food (down 0.5%), and furniture and home equipment (down 0.3%).

Rental prices saw a 2.6% increase for lease renewals and a 4.4% rise for new tenants, reflecting the overall trend in housing costs within the CPI calculation. These figures approximate the annual change in rent as most tenants remain under fixed-term contracts.