Israel Inflation December 2023

Israel: Inflation declines to lowest level since December 2021 in December

Inflation edged down to 3.0% in December, easing slightly from November’s 3.3% and below market expectations of 3.1%. December’s result marked the weakest inflation rate since December 2021 and was in line with the Bank of Israel’s 1.0–3.0% target range. Looking at the details of the release, the change in prices for food was largely steady in December, while prices for transportation and communication rose at a softer pace. Meanwhile, education, culture and entertainment price growth softened.

Annual average inflation fell to 4.2% in December (November: 4.4%). Meanwhile, core inflation edged down to 2.9% in December, from November’s 3.1%.

Lastly, consumer prices fell 0.10% in December over the previous month, a less pronounced fall than the 0.28% drop seen in November.

The encouraging inflation data could lead the Central Bank to cut rates further at its next meeting on 26 February, following a 25 basis point cut in January.

On the monetary policy implications, Goldman Sachs analysts said:

“We think that this release supports further gradual policy easing by the Bank of Israel, and we maintain our base case that the BoI will deliver an additional 25bp rate cut to 4.25% at the next meeting. But, in addition to inflation, FX and fiscal policy will be key for the policy outlook. The Shekel has been depreciating steadily in recent weeks. Although it still stands stronger than before the October 7 attacks, and we think that we are still far away from the BoI reconsidering FX interventions, if this trend continues, it could imply that the BoI is more cautious with further rate cuts.”

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