Israel’s annual inflation rate eased to within the government’s target range in August, opening the door for the Bank of Israel to consider its first interest rate cut in 21 months, official data showed Monday.
According to the Central Bureau of Statistics, the Consumer Price Index rose 0.7% in August, matching forecasts of a 0.6%–0.7% increase. Because the index jumped 0.9% in August 2024, the annual inflation rate dropped to 2.9% from 3.1% in July, bringing it inside the government’s 2025 target of 1%–3%.
Economists say the slowdown could give the central bank scope to cut borrowing costs later this year, particularly as the U.S. Federal Reserve and the European Central Bank also weigh further easing.
The main price increases came in culture and entertainment (up 2.9%), transportation and communication (up 1.6%), fresh vegetables (up 1.5%), housing (up 0.8%) and home maintenance (up 0.3%). Prices fell in fresh fruit (down 2.7%), clothing and footwear (down 1.6%) and furniture and household equipment (down 0.5%).
Housing data showed mixed movements. Between June–July and May–June, rents edged higher in Haifa (0.8%), the north (0.4%) and the south (0.4%), while falling in Jerusalem (down 0.1%), the central region (down 0.9%) and Tel Aviv (down 0.2%).
The home price index slipped 0.2% in August, with new home prices down 0.8%. Government-supported transactions accounted for 33.1% of new sales, up from 28% in the previous period. Excluding subsidized deals, new home prices fell 0.3%.
The figures come as Israel’s economy faces mounting strain from the Gaza war and the recent 12-day war against Iran. The government has already breached its budget framework, widened the deficit to 5.2%, and announced additional cuts of more than 3%. Meanwhile, preparations for the 2026 budget remain frozen following the disqualification of the finance minister’s preferred candidate to head the Budget Department.
With Israel’s participation in international forums under pressure from boycotts, economists say monetary easing under Bank of Israel Governor Amir Yaron may be the only near-term boost available.