September Inflation Paradox: Prices to Fall, But Annual Rate to Rise
Translated & summarized from Ynet by baba
Israel's September Consumer Price Index is expected to show a monthly decrease of 0.2%-0.3%, driven by seasonal factors and fuel tax cuts. However, the annual inflation rate is projected to rise to approximately 1.8% due to the exclusion of a larger decrease from the previous year. This development is likely to halt the Bank of Israel's recent interest rate cuts, with the next decision due October 21st, and further easing is not expected until early 2027.
The story in 6 lines · by baba
- Israel's September CPI is predicted to fall 0.2%-0.3%, but the annual inflation rate will rise to about 1.8%.
- The annual inflation increase is due to the exclusion of a larger 0.6% CPI drop recorded in September of the previous year.
- The Bank of Israel is expected to hold its interest rate steady at its upcoming October 21st meeting.
- Seasonal adjustments in travel costs and a fuel tax reduction are contributing to the expected monthly CPI decrease.
- Further interest rate cuts in Israel are not anticipated before the first quarter of 2027.
- Rising inflation brings the annual rate closer to the government's 1%-3% target range.
Israel's Central Bureau of Statistics is set to release the September Consumer Price Index (CPI) on Thursday evening. Market analysts anticipate a negative reading, with leading economists forecasting a 0.2% to 0.3% decrease. This expected drop is attributed to seasonal adjustments in airfare and vacation costs following the summer peak, as well as the impact of a fuel excise tax reduction. Without the tax cut, the anticipated September decrease would have been negated.
Despite the projected monthly decline, the annual inflation rate is expected to increase. This economic paradox stems from last year's September CPI, which saw a significant 0.6% drop. As the annual inflation calculation excludes this large negative figure and replaces it with the current, more moderate expected decrease, the annual rate is projected to rise from 1.5% to around 1.8%. This brings the inflation rate closer to the government's target of 1% to 3%.
Looking ahead, the remainder of the year may further challenge price stability. October 2025 saw a 0.5% CPI increase, followed by a 0.5% decrease in November and no change in December. Market expectations suggest higher CPI figures for the coming months, potentially pushing the annual inflation rate to around 2% or higher by the end of 2026.
The potential resurgence in inflation casts doubt on the continuation of an accommodative monetary policy. The Bank of Israel's Monetary Committee is scheduled to announce its next interest rate decision on Wednesday, October 21st. Following three consecutive rate cuts, bringing the current rate to 3.25%, the market consensus is that the rate will not be lowered further next week. The Bank of Israel's mandate to maintain price stability, coupled with the anticipated rise in inflation, necessitates caution.
Geopolitical and social uncertainties, along with the need to prevent a sharp depreciation of the shekel, will likely lead the committee to wait for inflation to stabilize before considering further monetary easing. Additionally, forecasts of rising interest rates in the US and Europe by year-end suggest that an interest rate cut in Israel is unlikely before the first quarter of 2027, potentially after the formation of the next government.
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