Israel's Consumer Price Index to Rise Slightly Tomorrow Before Sharp Inflation Surge Expected

Israel's Consumer Price Index (CPI) scheduled for release tomorrow is expected to increase modestly by 0.2% to 0.3%, which may slightly reduce the current annual inflation rate from 1.6% to around 1.5% or lower. This is due to last July's relatively high 0.4% increase, making a smaller rise this year reduce the yearly inflation figure. However, forecasts predict a significant inflation jump in August, with estimates ranging from a 0.6% to a full 1% increase, the latter projected by Psagot Investment House. August's CPI will be published on September 15, shortly after Rosh Hashanah.

The expected sharp rise in August is attributed mainly to a 61-agorot increase in fuel prices this month, higher costs for summer flights and vacations, and substantial rent hikes in new lease contracts as many tenants change residences. Additionally, inflation is anticipated to remain elevated through the end of 2026, as last year’s corresponding months showed unusually low indices. Seasonal price increases in food, clothing, and footwear during the Tishrei holidays are also expected to contribute.

The Bank of Israel and the Ministry of Finance project inflation to climb above 2% by the end of 2026. This outlook is under close scrutiny by the Bank of Israel's Monetary Committee and may slow the current interest rate reduction pace, which stands at 3.5%. Even the most optimistic forecasters do not expect more than one rate cut before year-end.