Inflation Expected to Fall, But Analysts Warn of Hidden Pitfalls
Translated & summarized from Maariv by baba
Israeli inflation is projected to fall to 1.4% in October according to analyst Nisan Avraham, though food and clothing prices may rise. Psagot Investment House forecasts higher inflation at 1.6% for the year. The Bank of Israel is expected to keep interest rates steady at 3.25% on November 23rd. A weakening shekel and global economic factors could impact future inflation and interest rate decisions.
The story in 6 lines · by baba
- Nisan Avraham forecasts Israel's annual inflation to drop to 1.4% with October's index release.
- Psagot Investment House predicts a 0.5% rise in October's index, keeping annual inflation at 1.6%.
- Food and clothing prices are expected to increase despite the overall inflation decrease.
- The Bank of Israel is anticipated to hold its interest rate at 3.25% on November 23rd.
- A weakening shekel could increase costs for flights, fuel, and imported goods.
- US inflation data may influence the Federal Reserve's decision to raise rates, impacting the shekel.
As Israel approaches the release of the October inflation index, stock market analyst Nisan Avraham forecasts a decrease in the annual inflation rate to 1.4%. However, he notes that prices for food and clothing are expected to rise. In contrast, analysts at Psagot Investment House project a different scenario, anticipating a 0.5% increase in the October index, similar to the previous year, which would keep annual inflation at 1.6%. Psagot economists also predict a 0.4% drop in the November index, partly due to seasonal decreases in airfare prices.
Despite Avraham's projection of inflation falling within the Bank of Israel's target range, he believes the central bank will maintain the interest rate at 3.25% during its November 23rd decision. Economists at Psagot also expect the interest rate to remain unchanged. The Bank of Israel's research division, in its updated forecast, anticipates the interest rate to average 3% in the third quarter of 2027, with inflation reaching 1.5% by the end of 2026 and 2.1% by the end of 2027. The bank emphasized that future interest rate decisions will depend on inflation trends, economic activity, geopolitical uncertainty, and fiscal developments.
The Israeli shekel has weakened since the recent elections, a trend that could increase the cost of flights, fuel, and imported goods if it continues. Avraham forecasts 12-month inflation at 2.4%, while Psagot's November 1st forecast, assuming a stable exchange rate and oil prices returning to $70 per barrel by early 2027, predicts 2% inflation.
External factors, such as the higher-than-expected October inflation in the US, could lead the Federal Reserve to raise interest rates in December, potentially further weakening the shekel and complicating Israel's ability to lower its own interest rates. Conversely, the formation of a stable government and the approval of a budget could reduce uncertainty and provide the Bank of Israel with more flexibility to cut rates.