April CPI analysis: overseas travel drives inflation surprise; likelihood of rate cut declines

ISRAEL - In Brief 16 May 2025 by Sani Ziv

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Israel’s Consumer Price Index (CPI) rose by 1.1% in April, exceeding market expectations for 0.6%-0.7%. The surprise was driven primarily by a 31% jump in overseas travel costs. The sharp increase in flight prices abroad in April likely reflects high demand ahead of the summer season. Since 2023, the Central Bureau of Statistics has changed the way it measures airfares, basing them on listed prices for upcoming months rather than on actual ticket purchases — making airfare inflation harder to predict. Additional notable increases were seen in domestic recreation (8%), public transportation (3.2%), clothing and footwear (1.2%) and education services (0.7%). Housing costs, as measured by renewed rental contracts, rose by 0.6%, beyond typical seasonal patterns. Food prices edged up only 0.1%, while furniture and household appliances recorded price declines. The annual inflation rate accelerated to 3.6%, up from 3.3% in March. Core inflation indicators also edged closer to 4%, well above the Bank of Israel’s target range. While we do not see this as a sign of re-accelerating inflation, the data reflect sticky pricing trends, as well as government-led price adjustments and inflation-linked indexation mechanisms. Looking ahead, May’s CPI is expected to rise by 0.3%-0.4%, bringing annual inflation to a short-term peak of around 3.8%. However, lower summer readings are anticipated, including a negative CPI in June, which could bring annual inflation below 3% before gradually rising again to around 3.2% by year-end. The shekel’s appreciation, declining oil prices, and weaker consumer demand due to shrinking disposable income are expected to ease inflationary pressures. That sai...