Annual inflation in Israel remained stable in January: annual rate amounts to 2.6%

Inflation in Israel has remained stable in January, with the Consumer Price Index (CPI) holding steady, according to the latest report from the Central Bureau of Statistics (CBS). This stability has led to an annual inflation rate of 2.6%, marking the lowest level since November 2021.

Analysts' optimistic forecasts were in line with the lack of price increases seen in January. However, contrary to main forecasts predicting a 0.1% inflation, the actual decrease of 0.4% in annual inflation can be attributed to the suppression of a 0.3% price increase recorded in January 2023. Additionally, housing prices showed signs of recovery, increasing by 0.7% in November-December and by 1.4% over the year.

While the restraint in the rate of price increase is viewed positively, there is uncertainty surrounding the upcoming interest rate decision by the Bank of Israel, scheduled for February 26. Market estimates suggest that the Bank may not lower the interest rate, citing a focus on stabilizing markets, reducing uncertainty, and supporting economic activity.

Factors influencing the decision include the recent downgrade of Israel's credit rating by Moody's, delays in passing the final budget by the Knesset, and potential restraining measures within it. Governor Amir Yaron has also highlighted the impact of the ongoing war on prices, warning of inflation risks post-war, particularly in rental prices.

However, despite the favorable economic indicators, the decision to delay lowering the interest rate may be influenced by significant activity in the economy, reflected in a sharp increase in the number of vacant jobs. Furthermore, the wait-and-see approach of central banks in the US and Europe, driven by disappointing inflation data in the US, provides additional breathing room for the Monetary Committee in Israel.