August CPI rises 0.7%, annual inflation remains at 1.5%

ISRAEL - In Brief 16 Sep 2026 by Sani Ziv

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The reading is good news for the Bank of Israel, although we still expect rates to remain unchanged through year-end. See our updated CPI and interest rate forecasts at the end of the report.Israel's August CPI rose by 0.7% m/m, slightly below our 0.8% forecast, while annual inflation remained unchanged at 1.5%. This is an encouraging reading for the Bank of Israel: Annual inflation has now remained below the 2% midpoint of the target range for six consecutive months. Most of the monthly increase reflected seasonal factors and higher fuel prices. Overseas airfares rose by 18%, recreation and holiday prices by 9.4%, housing by 0.6% and fuel prices by 7.2%. These increases were broadly expected. The main surprise for us was the 0.5% decline in food prices, compared with our forecasted decline of only 0.1%. In addition, car insurance prices fell sharply by 8%, subtracting around 0.15 percentage points from the monthly CPI. The decline follows regulatory pressure to reduce premiums after a sharp increase in insurers' profitability. Healthcare prices were unchanged, while education services rose by 0.4% ahead of the new school year. We see little evidence of broad-based price pressures outside the seasonal components, with underlying inflation running at around 2%. Trend data for May-August 2026 show that the CPI excluding housing increased at an annualized rate of 1.2% while headline CPI increased by 2%. The chart below shows the seasonally adjusted CPI in three ways. The bars, shown on the left-hand axis, represent the monthly change. The dark blue line, shown on the right-hand axis, represents the three-month change compared with the previous three months, annualized, wh...