September inflation remained low, but the Bank of Israel is likely to keep rates unchanged through year-end

ISRAEL - In Brief 16 Oct 2026 by Sani Ziv

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Israel's September CPI declined by 0.5% m/m, below market expectations of a 0.2%–0.4% decline and our forecast of a 0.4% decline. Annual inflation increased slightly from 1.5% in August to 1.6%, mainly due to base effects, while core inflation edged up from 1.3% to 1.4%. Despite these increases, annual inflation remains below the 2% midpoint of the Bank of Israel's target range for the seventh consecutive month. The decline was largely driven by a 14% drop in international airfares, alongside lower prices for domestic vacations. These are seasonal declines that follow the August summer holidays. Fuel prices also fell by 2.2%, reflecting the government's temporary reduction of the fuel excise tax, while clothing and footwear prices declined seasonally. Food prices surprised to the downside, falling by 0.4% following a 0.5% decline in August. As a result, food prices were only 1.1% higher than a year earlier. Underlying inflation remains relatively low, with the appreciation of the shekel continuing to moderate goods prices. Core goods prices declined by 0.5% y/y, compared with a 0.3% decline in August. The shekel's appreciation of around 10% against the dollar over the past year continues to affect consumer prices, despite its moderate depreciation since June. Services prices excluding housing rents and airfares increased by only 1.4% y/y, a particularly low rate considering the continued wage pressures in the Israeli labor market. The housing component of the CPI, which remains the main source of domestic inflationary pressure, was unchanged in September but was 3.7% higher than a year earlier. Rents increased by 2.4% for tenants renewing contracts and by 5.3% for new ...