December CPI flat; annual inflation drops to 2.6%, within target after three years above it; The rate-cutting cycle is expected to continue into 2026

ISRAEL - In Brief 16 Jan 2026 by Sani Ziv

---

We attach a brief update following last night’s CPI release. A fuller analysis, including our inflation forecasts for 2026–2027, will follow early next week. December CPI flat, in line with expectations; annual inflation eases to 2.6%, within target after three years above it Israel’s consumer price index for December, published yesterday, remained unchanged, bringing annual inflation to 2.6%. This marks the first time in three years that inflation has ended the year below the upper bound of the target range, following three consecutive years of above-target inflation. The December reading was in line with expectations. Price increases were recorded in clothing (0.6%), fresh fruit and vegetables (0.4%), housing (0.7%), and transportation, while declines were observed in culture and entertainment (0.9%), food (0.8%), household furniture and equipment (0.6%), and health services (0.4%).Trend data point to a slowdown in inflation toward the midpoint of the target range Trend indicators point to continued moderation in underlying inflation pressures. On a seasonally adjusted basis, both the headline CPI and the CPI excluding housing rose by 0.2% in December, while the CPI excluding housing and fresh fruit and vegetables increased by 0.1%. According to trend estimates for the September-December 2025 period, the annualized inflation rate stood at 1.5% for the headline CPI, while inflation excluding housing and inflation excluding both housing and fresh fruit and vegetables each ran at a more moderate pace of 1.2%, consistent with a gradual convergence toward price stability. Housing prices (which do not form part of the CPI) increased by 0.7% after eight consecutive months o...