Inflation moderates in January; probability of February rate cut rises

ISRAEL - In Brief 16 Feb 2026 by Sani Ziv

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Israel’s consumer price index, published yesterday, surprised slightly to the downside, falling by 0.3% in January 2026, compared with our forecast of a 0.2% decline and a 0.1%-0.2% decline in the consensus forecast. As a result, annual inflation eased to 1.8%, its lowest level since June 2021. The decline clearly reflects seasonal patterns, including a sharp drop in clothing and footwear prices (3.9%, in line with seasonality) and a significant fall in local recreation and vacation services (5.3%). However, the main driver behind the low CPI reading was the sharp decline in prices of travel abroad, which fell by 8.1%. We had expected a more moderate decline of around 4.2%, largely reflecting seasonality and appreciation of the shekel, but the actual drop was significantly larger and also reflected the return of foreign airlines. This item alone shaved 0.37 percentage points from the monthly CPI. In addition, fuel prices declined by 2.7%, supported by lower global oil prices and the appreciation of the shekel. Beyond these components, food prices increased by 0.1%, a slightly lower rate than implied by typical January seasonality, possibly reflecting some moderation in underlying price increases. Housing prices rose by 0.1% and were up 3.8% compared to the same period last year. This increase indicates that housing prices continue to trend upward. Notable price increases were recorded in several categories: the “miscellaneous” component rose by 2.4%, fresh fruits and vegetables increased by 0.8%, health services rose by 0.7%, housing maintenance costs increased by 0.6%, and rents climbed by 0.3%.Following the January CPI release, annual inflation fell to 1.8%, below th...