October Inflation Drops Unexpectedly, Pushing Rate to 1.1%; Housing Prices Also Decline
Translated & summarized from Haaretz by baba
Israel's Consumer Price Index unexpectedly fell 0.1% in October 2026, bringing annual inflation to a five-and-a-half-year low of 1.1%. Housing prices also saw a decline, with the overall index dropping 0.2% in August-September compared to the previous two months. Economists predict the Bank of Israel will hold interest rates steady at 3.25% due to stable inflation, potential shekel depreciation, and geopolitical uncertainty. The central bank is likely awaiting clarity on the new government's economic and security policies before considering rate changes.
The story in 5 lines · by baba
- Israel's October CPI fell 0.1%, lowering annual inflation to 1.1%, the lowest in five and a half years.
- Housing prices decreased by 0.2% in August-September 2026 compared to the prior two months.
- Economists expect the Bank of Israel to keep interest rates at 3.25% in its next decision.
- Inflation is now near the lower bound of the Bank of Israel's 1%-3% target range.
- Geopolitical and fiscal uncertainties are factors influencing the central bank's interest rate policy.
Israel's Consumer Price Index (CPI) for October 2026 fell by 0.1%, defying most economists' predictions of a 0.2% increase. This brought the annual inflation rate down to 1.1%, its lowest point in five and a half years, since April 2021. The current inflation level is close to the lower bound of the Bank of Israel's target range of 1% to 3% and significantly lower than September's 1.6%. The decrease occurred as October 2025's index, which had risen by 0.5%, was excluded from the annual inflation calculation.
Notable price increases in October were seen in clothing and footwear (up 4.1%), fresh vegetables (up 3.5%), apartment maintenance (up 0.4%), and home furniture and equipment (up 0.3%). Significant price drops were recorded in transportation (down 1.4%) and owner-occupied housing services (down 0.5%).
Data comparing August-September 2026 apartment transaction prices to July-August 2026 shows a 0.2% decrease in the housing price index. When comparing the current period to the same period last year (August-September 2025), the housing price index dropped by 1.5%. Regional price changes in August-September 2026 compared to July-August 2026 included increases in the North (0.4%) and Haifa (0.8%), and decreases in the Center (0.2%), Tel Aviv (0.8%), and South (0.6%). Jerusalem saw no price change.
New apartment prices specifically decreased by 0.7% in August-September 2026 compared to July-August 2026. The proportion of new apartment transactions under government subsidy fell from 42.8% to 41.8%. The national average apartment price in the third quarter of 2026 was NIS 2.2867 million, a 5.7% decrease from the previous quarter and a 1.5% decrease from the third quarter of 2025.
Economists anticipate the Bank of Israel will maintain its interest rate at 3.25% in its upcoming decision. This expectation is based on inflation remaining within the target range, the likelihood of continued U.S. interest rate hikes potentially weakening the shekel, and ongoing political and geopolitical uncertainty. The Bank of Israel's previous statement highlighted significant fiscal uncertainty, particularly regarding the defense budget, and noted that a substantial increase without offsetting adjustments could lead to higher deficits and inflation, suggesting a cautious approach to interest rate policy until the new government's economic and security policies become clearer.
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