Israel's CPI Rises 0.7% in August as Annual Inflation Ticks Up to 1.5%
Israel's Consumer Price Index rose by 0.7% in August 2026, bringing annual inflation to 1.5%. Mizrahi Tefahot Bank strategist Ronen Menachem highlights flight prices and fuel as key drivers, while interest rate cut expectations stall amid global monetary shifts.
The Consumer Price Index (CPI) rose by 0.7% in August 2026 compared to July 2026, according to data analyzed by Ronen Menachem, chief strategist at Mizrahi Tefahot Bank. Over the past twelve months, from August 2025 to August 2026, the CPI increased by 1.5%, indicating a pickup in inflation that was slightly below economists' expectations.
Main Drivers of the August CPI Rise
Flight prices served as the most significant contributor to the monthly index, surging by about 9% and adding roughly 0.4% to the overall figure. This trend follows the previous month's data and aligns with approximately 1.2 million Israelis traveling abroad during August. Domestic vacation prices, which correlate with flight costs, added another 0.14% to the index, though a significant correction is anticipated in September for both categories.
Fuel prices also drove considerable upward pressure. A 60-agorot increase per liter—rising from 7.48 NIS to 8.09 NIS—contributed nearly 0.2% to the index on its own. Furthermore, housing components posted increases ranging between 0.4% and 0.7%, adding about 0.17% combined. Conversely, car insurance prices dropped by a surprising 8.0%, shaving nearly 15 basis points off the index, likely reflecting a delayed adjustment to the strengthening of the shekel.
Inflation Expectations and Interest Rate Outlook
"The potential for a drop in flight prices on one hand, and a renewed rise in energy costs on the other, adds to the uncertainty of the index in the coming months," noted Ronen Menachem.
In the local bond market, short-term inflation expectations for the coming year have risen by nearly 0.5%, surpassing the 2.0% threshold. Meanwhile, expectations in the United States point to a high probability of a Federal Reserve rate hike, alongside projections for further increases over the next year, bringing the projected Fed rate above 4.5%.
This dynamic creates an unusual gap of over 1.25% compared to the US, effectively neutralizing any current expectations for a local interest rate cut in Israel until monetary policy trends in the US become clearer.
