Israel’s Consumer Price Index Rises 0.2% in February - Annual Inflation Reaches 2%

Israel’s Consumer Price Index (CPI) rose by 0.2% in February 2026 compared with January, according to figures published Sunday by the Israel Central Bureau of Statistics. As a result, annual inflation over the past 12 months climbed to 2%, up from 1.8% recorded in January.

The February data was collected before the outbreak of the war with Iran on February 28, meaning the figures do not yet reflect the economic impact of the conflict.

Economists had expected no monthly change in the CPI, following a 0.3% decline in January, and had forecast annual inflation to remain at 1.8%.

Food and Fresh Fruit Prices Lead Monthly Increase

The February CPI showed several notable price increases across key consumer categories.

Prices rose most sharply in:

• Fresh fruit, up 3.6%

• Culture and entertainment, up 0.8%

• Miscellaneous goods and services, up 0.6%

• Food, housing, home maintenance and transportation, each rising 0.3%

At the same time, several categories recorded price declines:

• Clothing, down 3.3%

• Fresh vegetables, down 1.4%

• Furniture and household equipment, down 0.2%

Two items contributed most significantly to the monthly increase:

• Owner-occupied housing services, which rose 0.4%

• Travel abroad, which increased 2.3%

Together, these components added approximately 0.11 percentage points to the monthly CPI increase.

Shortly before the war began, the Bank of Israel decided not to reduce interest rates, despite the drop in annual inflation to 1.8% in January, the lowest level in about four and a half years.

The central bank’s Monetary Committee cited the looming geopolitical tensions with Iran and concerns that inflationary pressures had not fully subsided.

The decision drew criticism from politicians and business leaders at the time.

Now, following the outbreak of the war, many economists believe inflationary pressures could intensify.

Economists Warn War Could Push Inflation Higher

In a new economic review, economists at Bank Hapoalim said the central bank currently has strong reasons not to lower interest rates in the near future.

According to the bank, several factors are pushing inflation risks higher:

• Rising fiscal deficits

• Increased geopolitical risk

• A global shift in sentiment toward renewed inflation concerns

Bank Hapoalim recently raised its 2026 inflation forecast from 1.8% to 2%, and analysts suggested the outlook could be revised upward again following the latest CPI release.

War Duration Could Determine Inflation Path

Alex Zveznisky, chief economist at Meitav Investment House, said the full inflationary impact will depend largely on how long the war lasts.

If the conflict is relatively short, the strengthening of the Israeli shekel could help offset inflationary pressures resulting from post-war economic recovery and increased demand.

However, a prolonged conflict could push inflation higher through several channels:

• Higher global energy prices

• Supply disruptions, including difficulties importing goods

• Labor shortages, due to the mobilization of military reserves and reduced availability of foreign workers

Another inflationary risk stems from the government’s fiscal policy.

Both Bank Hapoalim economists and Zveznisky expressed doubts about the government’s estimate that the fiscal deficit will reach 5.1% of GDP, suggesting the actual deficit could be higher.

Housing Prices Show Slight Decline

Alongside the CPI data, the Central Bureau of Statistics also released its housing price index, which indicated a slight decline in apartment prices.

Comparing transactions from December 2025–January 2026 with those from November–December 2025, apartment prices fell by 0.1%.

Although modest, the decline marks a pause in the increases recorded over the previous two months, which saw rises of 0.6% and 0.8%.

On an annual basis, apartment prices declined by 0.9% compared with the same period a year earlier.

Regional Housing Trends Show Mixed Picture

Price trends varied across Israel’s regions.

Year-over-year price increases were recorded in:

• Jerusalem District, up 5.4%

• Northern District (Israel), up 3.2%

• Southern District (Israel), up 0.6%

• Haifa District, up 0.5%

Price declines were recorded in:

• Central District (Israel), down 3.9%

• Tel Aviv District, down 2.8%

New Apartment Prices Continue to Fall

Prices for new apartments also declined slightly.

Compared with the previous period, new home prices fell 0.1%, matching the overall decline in the housing market.

However, when excluding government-supported housing transactions, such as subsidized programs, prices for new apartments fell by 0.4%.

On an annual basis, new apartment prices dropped by 2.7%.

Rent and Construction Costs Continue to Rise

Rental prices continued to increase.

According to the CBS data:

• Rent rose 2.7% on average in apartments where tenants renewed leases.

• In apartments with new tenants, rents increased by 5.8%.

Meanwhile, the residential construction input index rose 0.2% in February and 0.3% since the beginning of the year.

Over the past 12 months, construction input costs increased 2.2%, driven largely by a 4.9% rise in labor costs in the construction sector.