Sharp Drop in Consumer Price Index: Inflation Falls to 2.5% - Pressure Mounts on Bank of Israel

The Central Bureau of Statistics (CBS) announced this evening (Monday) that the Consumer Price Index (CPI) for September fell by 0.6%, a sharper-than-expected drop that brings the annual inflation rate down to 2.5%.
Analysts had forecast a more modest decline of only 0.3%. In comparison, the August index rose by 0.7%, with an annual inflation rate of 2.9%.

According to the CBS, September—traditionally a month of discounts—saw particularly steep price reductions, making this decline a surprise compared to market estimates.

Significant Price Decreases Across Key Categories

Notable decreases were recorded in:

• Fresh fruit: −3.2%

• Culture and entertainment: −2.4%

• Transportation and communication: −2.2%

• Food: −0.5%

• Clothing and footwear: −0.3%

• Housing services and apartment maintenance: −0.2% each

Meanwhile, price increases were recorded in:

• Fresh vegetables: +3.5%

• Rent and health: +0.3% each

Interest Rate Decision Looms

The Bank of Israel’s next interest rate decision, scheduled for late November, is expected to be heavily influenced by this sharp CPI decline.
Although the latest data support a potential rate cut, another inflation index—for October—will be released before the decision.

Today, the Bank of Israel clarified that it does not plan an emergency meeting to adjust rates following the end of the war, countering rumors of an imminent reduction. Nevertheless, the current index increases pressure on the Bank to move toward an easing policy.

Housing Prices Continue to Fall

In parallel, the CBS published the housing price index (not included in the CPI), showing that apartment prices fell by 0.6% in July–August 2025 compared with June–July—the sharpest drop since August 2023.
This follows a 0.2% decrease in the previous two-month period and marks the sixth consecutive bi-monthly decline.

Since the downward trend began in February 2025, housing prices have dropped cumulatively by about 2%.

Central District Leads the Decline, Tel Aviv Follows

The Central District led the price fall with a 1.8% decrease in July–August compared with the previous two months. In Tel Aviv, prices fell by 0.9%.

Year-on-year, prices in both regions also decreased — −2.9% in the Center and −1.8% in Tel Aviv.
In contrast, other districts saw increases over the same period:

• North: +8.4%

• Jerusalem: +4.2%

• Haifa: +3.7%

• South: +2.8%

Overall, apartment prices rose by only 0.7% year-on-year, marking the lowest annual growth since April 2024.

The CBS noted that new apartment prices fell by 1.2% in July–August compared with June–July.
This decline is largely attributed to a surge in government-subsidized transactions—programs such as “Buyer’s Price” and “Discount Apartment”—which accounted for 39.4% of all sales, up from 31.9% previously.

While market-based transactions (not under subsidy programs) fell by only 0.2%, the data show that new apartment prices rose just 0.5% over the past year.

Outlook: Disinflation Strengthens

The September figures underscore a cooling economic environment: inflation is nearing the lower end of the Bank of Israel’s target range (1–3%), and housing prices continue their steady decline.
Economists now anticipate that the Bank of Israel will face growing public and market pressure to begin cutting interest rates before the end of the year.