Israel's Annual Inflation Drops to 1.1%, Lowest Since April 2021; Housing Prices Decline
Translated & summarized from Ynet by baba
Israel's annual inflation rate fell to 1.1% in October, the lowest since April 2021, with a 0.1% monthly decrease. Housing prices also saw a decline, with the national index dropping 0.2% in August-September and 1.5% year-over-year. Despite low inflation, interest rate cuts are unlikely due to a weakening shekel and potential US rate hikes. The Bank of Israel expects the interest rate to remain stable for at least six months.
The story in 5 lines · by baba
- Israel's annual inflation dropped to 1.1% in October, the lowest since April 2021.
- The Consumer Price Index decreased by 0.1% in October.
- Housing prices fell 0.2% in August-September and 1.5% year-over-year.
- A Bank of Israel interest rate cut is unlikely despite low inflation.
- The central bank expects interest rates to remain stable for six months.
Israel's Consumer Price Index (CPI) decreased by 0.1% in October, leading to an annual inflation rate of 1.1% for the twelve months ending in October. This marks the lowest annual inflation rate since April 2021, when it stood at 0.8%. Notable price drops were observed in fresh fruits (-2.8%), transportation (-1.4%), and owner-occupied housing services (-0.5%). Conversely, prices rose in clothing and footwear (+4.1%), fresh vegetables (+3.5%), apartment maintenance (+0.4%), and home furnishings (+0.3%).
Rent prices saw an increase of 2.8% for renewing tenants and 5.5% for new tenants. Despite the low inflation, a significant interest rate cut by the Bank of Israel is considered unlikely. The central bank previously lowered the interest rate three times consecutively before holding it steady at 3.25% in late October. The weakening shekel, partly due to post-election dynamics, could increase import costs, while upcoming holidays are expected to drive up travel and vacation expenses. Meanwhile, the US CPI rose 0.4% in October, increasing market expectations for a Federal Reserve rate hike in December, which would further widen interest rate differentials and weaken the shekel.
Additionally, Israel's deficit may grow due to defense spending demands and the absence of a government to formulate a new state budget for 2027. The Bank of Israel's research division forecasts the base interest rate to remain between 3% and 3.25% for the next six months, with a potential drop to 3% not expected until the third quarter of 2027.
The housing price index fell by 0.2% in August-September 2026 compared to July-August 2026. Year-over-year, the housing price index decreased by 1.5% in August-September 2026 compared to the same period in 2025. Price drops were recorded across most regions, including Tel Aviv (-2.1%), Central Israel (-2.0%), and the South (-1.6%), with only the Haifa region showing a slight increase (+0.3%). New housing prices also declined by 0.7% in August-September 2026 compared to the previous two-month period, and by 0.2% year-over-year. The average national housing price in the third quarter of 2026 was approximately 2.286 million shekels, a 5.7% decrease from the previous quarter and a 1.5% decrease from the third quarter of 2025. Tel Aviv recorded the highest average price at 3.460 million shekels, while the North had the lowest at 1.498 million shekels.
