The consumer price index, due to be published Sunday evening, is expected to show a negative reading, according to economists at major banks and investment houses.
Forecasts point to a decline of 0.1% to 0.2% in January, which would lower Israel’s annual inflation rate to around 2%, or possibly slightly below. That would move inflation away from the midpoint of the government’s 1%–3% annual target range.
In January 2025, the index rose sharply by 0.6%, driven by tax increases and widespread price hikes. The value-added tax rate increased by one percentage point to 18%, National Insurance payments were raised, and the government initiated a series of price increases, alongside broader cost pressures partly linked to higher taxes.
The expectation of a negative reading in January 2026 is somewhat surprising, given a range of price increases at the start of the year. Municipal property taxes rose in many localities, in some cases significantly, and there were increases in electricity, water and cooking gas prices, as well as higher rents in contracts signed at the beginning of the year and rising food prices.
However, a sharp decline in the U.S. dollar and a significant drop in airfares after the Christmas holiday, along with the strengthening of the shekel, are expected to have a moderating effect on the index. Lower raw material costs and reduced prices for many goods are also likely to contribute.
After many forecasters had ruled out the possibility that the Bank of Israel would cut its benchmark interest rate by a quarter point for a third consecutive time on Feb. 23, some have revised their assessments. In light of expectations for a negative index reading and the shekel’s unexpected strengthening — although the representative rate edged up slightly from a low of 3.06 shekels to 3.08 shekels on Friday — many economists no longer dismiss the possibility of a rate cut to 3.75%. That would come just three months after the benchmark rate stood at 4.5%.
Contractors, industrialists and organizations representing self-employed workers and merchants argue that a low January index would give the central bank room to lower rates again, easing pressure on businesses, exporters — who have been hit hard by the weaker dollar — the construction sector and households.
Upcoming inflation readings may also help reduce the annual rate. February 2025 recorded a zero reading, and this year’s February index is expected to show only a modest increase. However, the following two months in 2025 were particularly high: the March index rose by 0.5%, and April 2025 jumped by 1.1%. Economists expect those months’ readings this year to be lower, which could further ease annual inflation.