Israel’s Consumer Price Index (CPI) declined by 0.3% in May - a significant turnaround

Israel’s Consumer Price Index (CPI) declined by 0.3% in May, according to data released by the Israel Central Bureau of Statistics, bringing annual inflation down to 1.9% over the past 12 months.

The latest reading places inflation comfortably within the Bank of Israel target range of 1% to 3%, offering policymakers greater flexibility as they assess the outlook for monetary policy.

Sharp Reversal Following April’s Surge

The May decline marks a significant turnaround from April, when the CPI rose by 1.2%. The result was slightly below market expectations, with most economists forecasting a more modest decrease.

Analysts said the weaker-than-expected inflation reading reflects easing price pressures in several sectors of the economy and suggests that the inflation spike recorded in April may have been temporary.

Growing Expectations for Interest Rate Cuts

Since the beginning of 2026, consumer prices have increased by 1.2%. The moderation in inflation is expected to strengthen market expectations that the Bank of Israel could consider lowering interest rates later this year if the trend continues.

Economists caution, however, that the central bank is likely to seek additional evidence that inflation is stabilizing before making any significant policy.

Markets are watching for Confirmation of a broader trend. Mainly subdued in the coming months, pressure may grow on policymakers to begin easing monetary conditions in support of economic growth. However, officials are expected to remain cautious until a clearer and more durable trend emerges in the data.