Weekly report, July 13, 2026: June CPI in focus; inflation to ease to 1.7%; fiscal data surprise to the upside

ISRAEL - Report 13 Jul 2026 by Sani Ziv

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Key headlines:

- The June CPI will be published on Wednesday. We expect inflation to remain unchanged on the month (0.0% m/m), thus lowering annual inflation to around 1.7%, supported by lower fuel prices and the earlier appreciation of the shekel.
- We expect one additional 25bp Bank of Israel rate cut, bringing the policy rate to 3.25% later this year. Inflation below the midpoint of the target range, subdued inflation expectations and only a gradual recovery in economic activity support further monetary easing.
- The Bank of Israel has become more active in limiting shekel appreciation through interest-rate cuts, FX purchases and increasingly dovish guidance.
- The appreciation of the shekel appears to be stabilizing. Institutional investors modestly increased FX exposure for the first time in several months, while foreign exchange reserves remained close to record highs.
- Fiscal performance continued to surprise to the upside. The rolling fiscal deficit narrowed to 3.3% of GDP (from 3.7%), supported by 26% y/y growth in June tax revenues and 10% y/y growth in H1 revenues, although higher defense spending remains the key medium-term fiscal risk.
- Domestic demand remains resilient but has yet to fully recover to its pre–Operation Rising Lion level. Business surveys, imports and retail indicators point to a gradual recovery, although the stronger shekel is beginning to weigh on export-oriented manufacturers.
- Consumer confidence stabilized in June but remains below pre-war levels, suggesting that households remain cautious despite resilient private consumption.
- Goods exports continued to recover, supported by the high-tech sector, while imports of investment goods, raw materials and consumer goods indicate that both business investment and private consumption remain strong.
- Israel will hold general elections on October 27. The coming months are likely to be marked by heightened domestic political tensions and weaker fiscal discipline.

The week ahead:

The June CPI will dominate the week's data calendar. As mentioned, we expect inflation to remain unchanged on the month (0.0% m/m), lowering annual inflation to 1.7%. Lower fuel prices, the lagged impact of the shekel's appreciation and seasonal factors should keep inflation subdued.