May CPI fell by 0.3%; strong shekel and lower oil prices support further rate cuts

ISRAEL - In Brief 16 Jun 2026 by Sani Ziv

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The May CPI fell by 0.3%, slightly below market expectations for a decline of 0.1%-0.2%. The decline was driven mainly by a sharp drop in overseas travel prices (-9.3%), reflecting both seasonal factors (airfare prices typically decline in May after the Passover holiday) and the sharp appreciation of the shekel. In addition, fresh vegetable prices fell by 4.9%. The stronger shekel also affected other CPI components. Clothing and footwear prices rose by less than their usual seasonal pattern, furniture and household equipment prices declined, and food prices remained unchanged for the third consecutive month. As a result, annual inflation remained at 1.9%, unchanged from the previous two months. We calculate a core inflation measure excluding seasonal factors, fruits and vegetables, and energy prices. This index rose by just 0.1% in May and by 2.1% over the past twelve months. The data suggest that underlying inflationary pressures are moderating and stabilizing around the midpoint of the Bank of Israel's target range.Housing costs continue to be the main factor supporting inflation. The housing component of the CPI increased by 0.6% in May, above the usual seasonal pattern. Rental prices for tenants who changed apartments rose by 6.8% over the past year, compared with only 2.5% for tenants renewing existing leases, highlighting continued pressure in the market for new rental contracts. At the same time, the housing price index, which is not included in the CPI, fell by 0.3% in the March-April period and was down 1.3% compared with a year earlier, reflecting the continued weakness of the housing market amid low transaction volumes, a large inventory of unsold homes and ...