Consumer Price Index Rises 0.7% in August, Fueling Inflation Concerns

The Consumer Price Index (CPI) in Israel rose by 0.7% in August 2026 compared to July 2026, according to data released Tuesday. Over the past twelve months, the CPI has increased by 1.5%, indicating rising inflation, though slightly below economists' expectations. Yoni Pening, Chief Economist at Mizrahi Tefahot Bank, attributed a significant portion of the monthly increase to a nearly 9% rise in airfare prices, contributing 0.4% to the index, continuing a trend from the previous month. This surge in travel costs occurred as approximately 1.2 million Israelis traveled abroad in August.

Additional factors contributing to the inflation included a 0.14% increase in domestic vacation costs, which are often correlated with airfare. Fuel prices also played a notable role, with a 60 agorot per liter increase (from 7.48 to 8.09 shekels) adding close to 0.2% to the index. Further price fluctuations in fuel were observed in September, with an initial increase, followed by a significant decrease in diesel prices, and a recent rise in crude oil prices that may impact future fuel costs.

Housing costs also contributed significantly, with relevant components rising between 0.4% and 0.7%, collectively adding about 0.17% to the index. This was expected, partly due to the seasonal impact of summer moves. While short-term inflation expectations in the bond market have risen to around 2.0%, Pening noted that the US Federal Reserve is widely expected to raise interest rates, potentially reaching over 4.5% within a year. This divergence could create a significant interest rate gap between Israel and the US.

Consequently, expectations for further interest rate cuts in Israel have diminished. Pening suggested that any change in local monetary policy would likely depend on the realization of US interest rate expectations. A notable surprise was an 8.0% decrease in car insurance prices, which subtracted approximately 0.15% from the index, possibly reflecting a delayed correction to a stronger shekel. However, this trend is not expected to continue.