Inflation Data Due Tonight Could Shape Israel’s Next Rate Decision

Israel’s Central Bureau of Statistics is set to publish the Consumer Price Index for May tonight, and economists broadly expect a negative reading, anywhere from minus 0.2% to 0%. The main driver is the sharp drop in the dollar against the shekel during May, alongside cheaper flights, flat housing prices, and only a modest decline in food costs.

Several forecasters expect a mild decline. Jonathan Katz of Leader Capital Markets sees a 0.2% fall, citing lower airfare, stagnant housing prices and softer food prices. Alex Zabezhinsky, chief economist at Meitav Investment House, predicts May and June will each fall 0.1%, with July then rising 0.4%. Hapoalim Bank expects minus 0.1%, and other investment houses are also calling for a negative print. May 2025 was already negative, at minus 0.3%.

The weak dollar has not yet fully passed through to consumers, because many manufacturers and importers, including car importers, have not cut prices. Strauss Group, for example, has not lowered chocolate prices even though coffee prices have dropped sharply and the dollar has weakened. The company says some coffee inventory was bought at higher prices, and if the decline continues, prices should fall.

A minus 0.1% CPI would put inflation exactly at the midpoint of the Bank of Israel’s 2% annual target, creating a dilemma for Governor Amir Yaron ahead of the interest-rate decision on July 6. Global inflation is rising, prompting a 0.25% rate hike in Europe and possibly similar action by the Federal Reserve, raising concern that imported inflation could reach Israel. At the same time, the low dollar hurts manufacturers and especially the high-tech sector, which could push the Bank of Israel toward a cut. Until recently, markets expected a sharp reduction of 0.25% to 0.5%, but that view may now be changing. Another factor supporting easier policy is the reported U.S.-Iran ceasefire agreement, which includes reopening the Strait of Hormuz and has already helped drive oil prices below $95 a barrel.