In February, Israel’s inflation rate fell to a four-month low of 5.2%, down from 5.4% in January. While this may appear to be good news, it was actually higher than expected, suggesting that the Bank of Israel may raise interest rates again next month.
The consumer price index (CPI) rose 0.5% in February, exceeding the market consensus of a 0.3% monthly increase and a 5.0% annual rate. Notable gains were registered in fresh produce, food, housing, and transportation costs.
The inflation rate for February was the lowest since October, but it is still above the government target of 1-3%. Over the past year, the central bank has raised its benchmark rate sharply from 0.1% last April to 4.25% due to a persistently high level of inflation.
Rents on new contracts increased by 7.5% during the last twelve months, while home prices continued to rise at a slower pace. Between December 2022 and January 2023, home prices increased by 0.1%, compared with month prior to that. Over the past year, however, home prices rose at a pace of 14.6%.
The higher-than-expected inflation rate in February means that the central bank may have to raise interest rates again next month. While this may help bring inflation under control, experts are concerned that it could also have an impact on the country’s economy. Consumers may find it harder to obtain loans, while businesses may have to pay higher interest rates on credit, which could slow down the overall economic growth.