Israel’s consumer price index for September is projected to contract by 0.3% m/m, according to forecasts from Meitav and Leader Capital Markets.

Still, headline annual inflation will paradoxically accelerate to roughly 1.8% y/y from 1.5% y/y due to base effects, according to these projections.

The statistical divergence stems from mechanical calculations: a sharp 0.6% deflationary drop recorded in September 2025 is dropping out of the 12-month calculation, replaced by a softer contraction that lifts the headline reading despite an actual monthly drop in consumer costs.

The Central Bureau of Statistics (CBS) reported on September 15 that annual inflation held at 1.5% in August, the lowest since May 2021, as consumer prices rose 0.7% m/m. Housing costs were up 3.8% y/y in that month.

While the projected 1.8% print sits well within the Bank of Israel's 1% to 3% target corridor, central bank policymakers are confronting structural distortions masked by temporary state fiscal interventions and calendar shifts.

The expected monthly retreat is largely anchored by administrative suppression rather than organic demand destruction. A Finance Ministry decision to cut fuel excise taxes dropped 95-octane gasoline by 4.2% to ILS7.75 ($2.53) per litre for most of the month, subsidising pump prices through foregone state revenues rather than global energy deflation.

Conversely, underlying price pressures remain elevated; an early high holiday cycle drove 1.23mn Israelis abroad, a 17% y/y increase, keeping travel costs elevated.

More critically, core service inflation remains stubborn. Rents for renewed leases climbed 2.6% while turnover units jumped 4.4% in late summer, with Leader Capital Markets warning that expanding foreign worker inflows will sustain structural housing pressures well into 2027.

The CBS is due to publish the official September reading, which will show whether the forecasts hold.

The Bank of Israel's key rate stands at 3.25%, with its next decision scheduled for October 21.