Israel's June CPI surprised to the upside: +0.3% m/m, 3.3% y/y - lowering chances of a near-term rate cut

ISRAEL - In Brief 17 Jul 2025 by Sani Ziv

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The June CPI surprised on the upside, rising by 0.3% month-on-month at the upper end of market expectations—and pushing annual inflation up to 3.3%, from 3.1% in May. Food and housing remained the main drivers of the increase, each rising by 0.7% and 0.6%, respectively. Core services also increased: Health and education services each rose by 0.3%, reflecting continued pressure in non-tradable sectors. Part of the monthly increase likely reflects temporary distortions following the two-week war with Iran. For instance, fresh fruit prices fell by only 2.5%, well below the typical seasonal decline of 9%, adding approximately 0.1 pp to the index. Meanwhile, prices of locals’ nights in hotels jumped 7.1%, likely due to demand for safe protected lodging during missile attacks. The chart below shows the contribution of each CPI component to the 12-month inflation rate, which totaled 3.3% as of June 2025. Housing and food together contributed approximately 1.7 percentage points, nearly half of the total increase. A significant part of the price rise over the past 12 months originated from government policy measures, including higher taxes on cigarettes and tobacco (0.34%), public transportation fares (0.19%), as well as increases in water and electricity prices (1.04%) and the VAT hike. GRAPH 1Contribution of CPI components change over the last 12 months (June 2025) Source: Central Bureau of Statistics (CBS) Core measures remain elevated but stable  Core CPI (excluding housing, fruits and vegetables, and regulated items) rose by 0.3% in seasonally adjusted terms. The underlying inflation rate edged down but remains at the upper end of the Bank of Israel’s target range. The 12-...