March CPI up 0.5%, annual inflation eases to 3.3%; rate cuts expected in H2 as disinflation builds

ISRAEL - In Brief 16 Apr 2025 by Sani Ziv

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March CPI analysis: Housing and food continue to drive inflation The Consumer Price Index (CPI) for March increased 0.5%, slightly above our expectations for a 0.4% increase. The annual rate decreased to 3.30% in March, from 3.40% in February 2025. The March CPI was driven primarily by a 0.9% increase in housing costs, which are up 4.4% year-on-year—suggesting that pressures in the housing market remain strong. This is consistent with a 0.9% monthly rise in home prices (not included in the CPI). Food prices rose by a moderate 0.2% in March but are still up 4.8% year-on-year. Even after adjusting for the VAT hike—estimated to have contributed 0.8 percentage points—the underlying upward trend remains evident. Domestic tourism also increased: Accommodation and vacations in Israel rose by 6.5%, slightly above the usual seasonal pattern, likely due to a recovery in tourism in the north of Israel. Clothing and footwear prices climbed 2.2%, in line with seasonal expectations. International travel costs rose 1.7%, after a 13% cumulative drop since October 2024, bringing prices close to pre-war levels. Education and healthcare services posted increases of 0.4% and 0.2%, respectively, suggesting embedded inflationary pressures in core services. Monthly inflation and inflation in the last 12 months The graph below describes monthly inflation data and forecasts: The line (right axis) shows year-on-year inflation, which is expected to decline to below 3% in the second half of the year. Source: Central Bureau of Statistics Forecast: Macro Analytics Ltd. Inflation outlook Headline inflation is expected to rise by 0.6% in April, driven by seasonal factors, a weaker shekel, and increas...