Consumer Price Index: What to expect and should you take a loan now?

The Consumer Price Index (CPI) for July will be published tomorrow at 14:00, rather than on the 15th, which falls on a Saturday. This is a significant indicator, but the real story lies not in the index itself, but in what it signals for the coming months.

Market forecasts converge on a moderate increase of 0.3%–0.4% for July. Alex Zabezhinsky, chief economist at Meitav, expects a 0.4% rise, while Yoni Fanning, chief strategist at Mizrahi Tefahot, predicts 0.3%.

The critical point is the impact on annual inflation, which currently stands at 1.6%. Since the index rose by a relatively high 0.4% in July of last year, a lower index tomorrow will actually pull annual inflation down to about 1.5% or less. In other words, even if the index shows an increase, the annual figure will decrease due to the high base effect from last year.

The primary driver this month is flight prices. July data showed a nearly 40% jump in the number of Israelis traveling abroad, reaching a record 1.15 million passengers. This reflects a surge in demand during a period of relative security calm. However, Fanning suggests that increased supply might lead to a price correction in August.

Outlook for August and Beyond

Despite the moderate expectations for July, forecasters anticipate a significantly higher index in August, ranging from 0.6% to a full percentage point. This is driven by sharp fuel price increases (up 61 agorot this month), rising costs for summer vacations, and, notably, significant price hikes in new rental contracts.

Indices through the end of the year are also expected to remain relatively high. This is because the corresponding months in 2025 recorded abnormally low indices, meaning year-over-year comparisons will work against inflation. The Bank of Israel and the Ministry of Finance expect annual inflation to return to levels above 2% by the end of 2026.

Impact on Interest Rates and Loans

The Bank of Israel's monetary committee is monitoring these trends closely. If inflation accelerates, it could slow the pace of interest rate cuts, currently at 3.5%. Even the most optimistic forecasters no longer see room for more than one rate cut before the end of the year.

For mortgage holders, the picture is complex. Tomorrow's moderate July index is positive news in the short term, as it lowers annual inflation and eases the burden on index-linked loans. However, the future outlook is more concerning: if subsequent indices jump as expected, linkage costs will rise, and the anticipated relief in monthly payments may be delayed.

Bottom line: Do not let tomorrow's moderate index mislead you. It represents a temporary moment in a trend that is expected to reverse. Anyone planning significant financial steps, such as taking a mortgage or refinancing, should consider the forecast for the coming months, when inflation is expected to rise again.