Israel’s consumer prices fell more sharply than expected in September, offering some relief to households as lower travel, accommodation and transportation costs drove the monthly inflation reading into negative territory.
The Consumer Price Index (CPI) declined by 0.5% in September compared with August, according to data released Thursday by Israel’s Central Bureau of Statistics. The result exceeded market expectations for a decline of 0.3% to 0.4%.
Despite the monthly drop, annual inflation edged up to 1.6%, from 1.5% in August. Inflation remains within the Bank of Israel’s target range of 1% to 3%.
Foreign Travel and Hotel Prices Lead the Decline
The September reading was driven in part by substantial declines in travel-related expenses.
Prices for hotels and other accommodation services fell by 14.2%, while the cost of travel abroad dropped by 14%. Petrol prices declined by 2.2%.
Across broader spending categories, culture and entertainment prices fell by 2.7%, transportation costs declined by 2.5%, and clothing and footwear prices dropped by 0.9%. Food and household furniture and equipment prices each decreased by 0.4%.
The declines were partially offset by a 6.6% increase in fresh vegetable prices. Education services rose by 0.8%, while rents increased by 0.4%.
Rent Increases Signal Continued Housing Pressure
Although the overall CPI declined, rental costs continued to rise. Rents for tenants renewing existing leases increased by 2.4% in September, while rents for new tenants surged by 5.3%.
The figures highlight the uneven impact of inflation on Israeli households: seasonal declines in travel and accommodation costs can lower the headline index even as recurring expenses, particularly housing, remain under pressure.
Housing Market Weakness Adds to the Economic Picture
Separate housing-market data indicated renewed weakness in apartment prices, with residential property prices declining by 1.8% over the year.
The divergence between falling apartment prices and rising rents underscores the different forces affecting Israel’s housing market. Purchase prices reflect financing conditions and buyer demand, while rents are influenced by the supply of rental properties and demand from households seeking accommodation.
Bank of Israel Rate Outlook in Focus
The latest inflation figures will feed into the Bank of Israel’s assessment of monetary policy. Inflation below the midpoint of the target range could provide room for interest-rate reductions, provided other economic indicators support such a move.
However, the September decline should be interpreted cautiously. A significant portion of the drop came from travel-related categories, which can be volatile and seasonal. Persistent increases in rents and other household expenses could complicate the central bank’s assessment.
Policymakers will also consider inflation expectations, the shekel’s exchange rate, economic growth and geopolitical risks before making their next interest-rate decision.
Market takeaway: September’s CPI report provides short-term relief on headline inflation, but the rise in annual inflation and continued pressure on rents suggest that the cost-of-living challenge is far from over.
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