Israeli Inflation Holds Steady at 3.5% in October Amid Rising Prices in Key Categories

 According to the Central Bureau of Statistics, the consumer price index (CPI) for October rose by 0.5% compared to the previous month, but annual inflation held steady at 3.5%, the same rate as during the corresponding period last year. Despite the monthly increase, the overall inflation rate remains within the government’s target range, though it continues to challenge economic policymakers.

Among the categories with notable price increases in October were clothing and footwear, which rose by 3.5%, transportation (up 1.9%), and food and health services, each recording a 0.5% increase.

In contrast, there were slight price decreases in tenant-owned housing services and in the culture and entertainment sectors, both of which saw a 0.2% drop.

Rising Rent Costs

One of the biggest contributors to inflation remains the housing sector. Rent for tenants who renewed their contracts increased by 2.2%, while new tenants (in apartments with tenant turnover) faced rent hikes of 4.0%. The continued upward pressure on rent prices has raised concerns about the affordability of housing, especially in urban areas.

No Immediate Rate Cuts Expected

Despite the monthly CPI increase, inflation is not expected to fall significantly shortly, signaling that the Bank of Israel is unlikely to lower interest rates until mid-2025. If end-of-year inflation exceeds expectations, there is a realistic possibility that the central bank could raise rates by 0.25 percentage points to 4.75%.

This comes amid global inflationary trends, where inflation has been gradually declining in many parts of the world, except a slight uptick in the United States. In Israel, however, inflation remains persistently above the government’s target range of 1%-3%, further complicating the Bank of Israel's monetary policy decisions.

VAT Increase to Impact Inflation in 2025

Looking ahead, experts predict that inflation will rise in the coming months, driven in part by the expected 1% increase in VAT, set to take effect in January 2025. Studies suggest that the VAT hike could add around 0.6% to the CPI. With inflation having been low in the same months last year, it is expected that the annual inflation rate will rise over the next few months when calculated on a year-over-year basis. For example, in November 2023, inflation was recorded at -0.3%, in December at -0.1%, and January 2024 saw a zero index.

Housing Market: Mixed Signals 

In the housing market, property prices have shown a slight decline in recent months. Transactions conducted between August and September 2024 revealed a 0.1% decrease in apartment prices compared to the previous period (July-August 2024). Regional variations were evident, with the Jerusalem and Central districts seeing price drops of 0.7% and 0.1%, respectively. However, other regions, including the North, Haifa, and South, saw price increases ranging from 0.4% to 1.2%.

New apartment prices, on the other hand, showed a slight increase of 0.1% in August-September compared to the prior two months. Notably, the proportion of new apartment transactions supported by government subsidies grew from 21.5% to 24.4% in this period.

Slowdown in Annual Apartment Price Growth

When comparing August-September 2024 to the same period in 2023, the annual increase in apartment prices slowed to 6.1%, compared to a higher growth rate in previous years. Price increases were observed across all districts, with the largest annual jumps in Haifa (10.8%) and the Center (7.2%). The price of new apartments rose by 3% over the same period.

Quarterly Analysis: Price Dip in Q3 2024

In a quarterly analysis, the average price of an apartment in Israel in the third quarter of 2024 was approximately NIS 2.243 million, marking a 3.7% decrease from the previous quarter (which had an average price of NIS 2.33 million). However, when compared to the same period last year (Q3 2023), the average apartment price increased by 6.6%, reflecting the continued upward trajectory of housing costs in Israel.