Israel anxiously anticipates the imminent release of inflation data set for tomorrow, with markets bracing for a potential rebound to around 4%, following a recent drop to 3.3% in July.

Across the globe, a surprise setback was experienced in the United States regarding inflation. In August, the price index surged to an annual rate of 3.7%, slightly exceeding the market’s forecast of 3.6%. Just a month ago, the US reported its first inflation increase in over a year, reaching 3.2%. Concerns are growing that rising prices could persist, potentially pushing interest rate cuts further away.

In both Israel and the world at large, inflation in the coming months is anticipated to be erratic. The Bank of Israel predicts a summer surge, followed by a swift drop to 2.5% by next April. These forecasts are in line with the bank’s commitment to maintaining an inflation target of 1%-3% as per government decision, positioning it within the target range in the coming months.

Nonetheless, it’s important to remember that over the past year, numerous optimistic macro forecasts have fallen short. Some fear that even the “technical” jump in the August index, attributed to the negative price index in August 2022, might prove challenging to quickly rectify.

The Bank of Israel’s recent review highlights that the anticipated consumer price index jump is primarily due to energy and housing price increases. While food and energy components have seen significant drops from their earlier inflation peaks this year, housing, particularly rent, continues to drive price increases in Israel.

Economists like Yonatan Katz, senior economist at Leader Investment House, expect a 0.3% increase in the upcoming index, pushing inflation to 3.9%. This uptick is attributed to seasonal factors, including rising rental prices (0.5%) and an increase in recreation costs (12%), offset by a decline in clothing prices due to end-of-season discounts.

Modi Shafferer, Chief Financial Markets Strategist at Bank Hapoalim, also estimates a 0.3% increase in the August index but notes significant uncertainty regarding the measurement of fruit and flight costs. Transport and communication expenses are expected to rise due to increased cell phone prices and car insurance, coupled with higher flight and overseas stay costs resulting from the shekel’s sharp devaluation in August.

Rafi Gozlan, Chief Economist at IBI Investment Bank, predicts an even higher inflation rate of 4%-4.1% in the next index, driven primarily by housing and food costs.

The continuous devaluation of the shekel against the dollar, alongside rising oil prices globally, is another factor contributing to inflation risks. If the shekel’s depreciation persists, it could lead to higher inflation in the future.

In the meantime, the Bank of Israel continues to closely monitor the situation in the US, as any Fed interest rate hikes could impact Israel’s economic policies.