August CPI Expected to Surge by 1.0% as Annual Inflation Climbs to 1.8%
August CPI is projected to surge by 1.0%, pushing annual inflation to 1.8% and halting rate cuts. Bank of Israel interest rate is expected to hold at 3.25% amid geopolitical tensions and rising energy costs.
The Consumer Price Index (CPI) for August is expected to surge by 1.0%, breaking a streak of declining prices. Last August, the index rose by 0.7%. The increase is primarily driven by a 60-agorot jump in gasoline prices. A further price hike, canceled at the beginning of September following a reduction in the fuel excise tax, will impact the September index rather than August. The price of a liter of gasoline has been set at 7.75 NIS for the coming two months.
Inflation and Interest Rate Projections
It is widely assumed that the September index will be negative, dropping by 0.1% to 0.2%. Categories expected to rise in the August index include transportation, recreation, communications, and items related to the return of students to school. Following the August index, annual inflation is expected to rise to 1.8%. Overall, the year is projected to conclude with a price increase of 2.0%.
"The pricing of inflation in the bond market still gives preference to indexed channels, particularly against the backdrop of concerns over rising global commodity prices," notes Jonathan Katz, Chief Economist at Leader Capital Markets.
This moderate rise in inflation will likely prevent Bank of Israel Governor Prof. Amir Yaron from further reducing the interest rate, which will remain at 3.25% per annum. The Governor's decision earlier in the month to lower the rate by 0.25% came as a surprise given the security and budgetary challenges.
Global and Local Economic Factors
The next interest rate decision will be made on October 21, six days before the Knesset elections. The subsequent decision on November 23 will be the final one for 2026. Monetary policy during 2027 will be shaped locally by the steps taken by the incoming government, and internationally by the continuation of the war involving Iran and its impact on energy prices. Oil prices climbed to 107 dollars per barrel amid fears of the closure of the Bab al-Mandeb strait by the Houthis, while the shekel depreciated against the dollar, reaching 3.06 NIS during trading—a two-month high.
