August print analysis: Housing and seasonality pushed inflation up;

ISRAEL - In Brief 16 Sep 2025 by Sani Ziv

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August’s CPI rose 0.7% m/m slightly above our expectations for 0.6% rise, bringing headline inflation to 2.9% y/y, slightly below the upper bond of the target range of the central bank (1%-3%). The print was a classic summer seasonal reading: Airfares increased 17% and domestic holidays 12%, both pushing up the index, while clothing & footwear fell 1.5% and partly offset the increase. Housing (renewed leases) rose 0.9% (also seasonal: in the summer period prices increase) and contributed about 0.28pp. Food was almost flat (0.1%), helped by cheaper fresh meat (-0.1%). Education and health services edged up 0.2% and 0.3%, respectively. Excluding seasonal components (fruit & vegetables, holidays, overseas travel), we estimate the index advanced 0.4%, almost entirely due to housing.Near-term inflation outlook: A series of low CPI prints expected between September and December, but inflation remains near the upper boundFor September, we expect CPI to fall by 0.2%, mainly on reverse seasonality. From October we project only a modest accumulation of about 0.1-0.2 percentage points between October and December. However, inflation risks remain, and 2026 inflation is expected to hover near the upper bound of the target. Housing and food prices will continue to rise, while wage pressures may persist due to large-scale reserve duty mobilization. Fiscal policy is another source of risk: A VAT hike and new taxes to cover the deficit could add around 1pp, pushing inflation toward 3.5%. If these measures are not implemented, the deficit itself will widen, adding further inflationary pressure. Global risks are also emerging, with U.S. tariffs likely to fuel renewed price pressures afte...