Israel’s Inflation Holds at 2.5% in October; CPI Rises 0.5% as Housing Prices Continue to Fall

The Central Bureau of Statistics (CBS) reported Friday that the Consumer Price Index (CPI) rose 0.5% in October, keeping annual inflation steady at 2.5% — comfortably within the government’s 1–3% target range.

The result matched economists’ expectations and could pave the way for an interest rate cut at the Bank of Israel’s monetary meeting later this month. The central bank’s key rate has stood at 4.5% since January 2024, a level that has slowed credit growth but also weighed on the housing market and consumer spending.

“Two consecutive months of moderate inflation below the upper target limit strengthen the case for a rate reduction,” said a senior market analyst.

Key Drivers of October Inflation

According to CBS data, price increases were concentrated in volatile or seasonal categories:

• Fruits and vegetables: +3.9% (fresh vegetables +6.6%)

• Clothing and footwear: +3% (as winter collections reached stores)

• Food: +1.4%

• Transport and communications: +0.9%

• Apartment maintenance: +0.4%

• Rent: +0.3%

The largest single contributor to October’s CPI rise was “travel and flight expenses,” up 2.7%, which added 0.13 percentage points to the index.

By contrast, cultural and leisure spending fell 1.7%, and housing services for owner-occupiers declined 0.9%, reflecting a continued slide in real estate prices. This item alone lowered the overall index by 0.17%.

When excluding housing, the October CPI rose 0.8%, while the seasonally adjusted increase was just 0.2%, indicating that much of the rise was temporary.

Inflation Trend Remains Under Control

Over the past four months, the pace of price increases has slowed to 1.8% annualized, or 2.1% excluding housing and fresh produce — both within target.

“Inflation pressures have clearly eased,” said one financial strategist. “The question now is not whether the Bank of Israel will cut rates, but by how much.”

Apartment Prices Continue to Slide

CBS data also showed that housing prices fell for the seventh straight month, with the national housing index down 0.3% between August–September 2025 and July–August 2025.

Since May, prices have dropped by 2.4%, while the annual change now shows virtually no real increase — just 0.5% year over year.

Regional Breakdown

• Central District: −2.8%

• Tel Aviv District: −1.6%

• Haifa District: +1.7%

• Northern District: +7.4%

The new apartment price index showed a 0.8% monthly decline, but when excluding subsidized homes under government programs such as Mechir Lemishtaken and Discounted Apartment, the decline moderated to 0.3%.

Overall, average apartment prices fell to ₪2.21 million in Q3 2025, 1.9% below the previous quarter and 2.5% lower than a year ago.

In Tel Aviv, the average price dropped dramatically — from ₪4.5 million in 2024 to ₪3.69 million in 2025, reflecting a real correction in Israel’s most expensive housing market.

Economic Outlook

The combination of moderating inflation, declining housing prices, and weakened consumer sentiment is expected to bolster calls for monetary easing.

Economists anticipate a rate cut of 0.25–0.5 percentage points at the Bank of Israel’s upcoming meeting in ten days — a move that could mark the beginning of a gradual normalization cycle after two years of tight policy.

“The data signal a cooling economy and a fading inflation threat,” said an investment house economist. “If the Bank waits too long, it risks over-tightening and deepening the slowdown.”