Weekly Report - October 12, 2026: Two weeks until the elections, September CPI in focus, fiscal deficit remains low
Last week's economic releases provided further evidence that the Israeli economy continues to expand at a relatively solid pace. The most encouraging developments were the rebound in credit-card spending, the improvement in current business conditions and continued strength in imports. The fiscal figures were also reassuring, with the deficit remaining at 3.2% of GDP. We expect the deficit to reach around 4% of GDP by year-end, below the government's target of 4.9%.
Attention this week will focus on Thursday's September CPI release. We forecast a 0.4% monthly decline, although the timing of the Jewish holidays adds uncertainty regarding airfares. Annual inflation is expected to rise to around 1.7% due to a base effect, while market-based inflation expectations remain considerably lower. The recent weakening of the shekel and rising oil prices have reduced the likelihood of further rate cuts. We expect the Bank of Israel to keep its policy rate unchanged at 3.25% on October 21.
Political uncertainty remains elevated just two weeks ahead of the October 27 election. Although recent polls suggest some strengthening of Netanyahu's bloc, most indicate that neither bloc is likely to secure the 61 seats needed for a parliamentary majority. Post-election scenarios range from a minority government led by Gadi Eisenkot, potentially supported by the Arab parties, to a national unity government or another round of elections.
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