Israeli Inflation Sees an Unexpected Drop to 3.1%, Housing Prices Fall

The decline in inflation brings it closer to the Bank of Israel’s target range of between 1% and 3%.

By Shula Rosen

Israel’s Consumer Price Index (CPI) dropped by 0.3% in May 2025, surprising analysts who had expected no change following a sharp 1.1% rise in April.

The unexpected decline brought annual inflation down to 3.1%, from 3.6% in April, as it moves closer to the Bank of Israel’s target range of 1% to 3%.

This marks the lowest annual inflation figure since June 2024, when it stood at 2.9%. Analysts had forecast May’s rate to come in slightly higher, between 3.3% and 3.4%, making the latest figure a pleasant surprise for policymakers and consumers alike.

The main contributors to the decline were lower prices in transportation and communications, both down 2.4%, as well as a slight dip in fresh vegetable prices and housing-related expenses. However, some categories saw price increases, notably fresh fruit, which rose 3.9%, and clothing, which increased 1.4%.

With inflation cooling, attention may now turn to the Bank of Israel’s interest rate policy. The base rate has remained at 4.5% since January, but softer inflation could increase pressure for a rate cut in the coming months.

Meanwhile, housing prices—tracked separately from the CPI—recorded a modest 0.1% decline from March to April, continuing a mild downward trend. Regionally, prices varied, with Jerusalem seeing a 1.2% rise, while the north experienced a 1.3% drop.

Despite recent monthly declines, housing prices remain significantly higher year-on-year, with a 5.1% increase overall and even sharper rises in the north and Jerusalem. New apartment prices are also up 5.8% over the past year.

As inflation inches closer to the government’s comfort zone, policymakers will be watching closely to determine the next steps in managing Israel’s economic stability.