July CPI preview: inflation to remain above target, Gaza operation endangers rate-cut prospects

ISRAEL - In Brief 14 Aug 2025 by Sani Ziv

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Tomorrow (Friday) we will get July’s CPI print, and we will be watching it closely. We expect a 0.3%-0.4% monthly increase, which would keep annual inflation at around 3.1%, still above the Bank of Israel’s 1%-3% target range. July is typically a low-to-moderate CPI month, with an average monthly rise of 0.3% over the past decade. This is mainly due to summer seasonality: Higher spending on domestic and overseas vacations is partly offset by seasonal sales in clothing and footwear. Housing costs, particularly rent renewals, may also exert upward pressure during this month due to seasonality, as the summer months typically see more people moving house. If we get a softer-than-expected reading, especially against the backdrop of very low inflation expectations, the case for a late-2025 rate cut strengthens. Conversely, an upside surprise may reinforce the central bank’s cautious stance. The Bank of Israel’s next policy meetings are scheduled for August 20, September 29, and November 24. We do not expect a policy change in August. Geopolitical developments remain a key consideration. The security cabinet’s decision last Thursday to launch an operation to seize Gaza City, with plans to subsequently extend control over the entire Strip, is likely to weigh against a rate cut—particularly in light of the fiscal implications, which could substantially widen projected deficits for 2025 and 2026. That said, Israel’s risk premium, as reflected in CDS spreads, has so far remained broadly stable.