Inflation in Israel observed an increase as the annual rate reached 2.7% in March, up from 2.5% in February, driven by rising costs in housing and travel, according to the latest data from the Central Bureau of Statistics. This uptick in inflation diminishes the likelihood that the central bank will cut the already high borrowing costs in May.

The Consumer Price Index (CPI), which measures changes in the price level of a basket of consumer goods and services purchased by households, saw a 0.6% increase in March. This is slightly above the forecasts by analysts, who predicted an increase of between 0.4% to 0.5%. The CPI had risen by 0.4% in February, bringing the cumulative annual inflation over the past 12 months to 2.7%.

The rise in inflation was notably impacted by higher housing prices and increased costs for both domestic and international travel. Specific sectors saw significant price changes, such as cigarettes, which surged by 7.1%, and travel and vacation costs, which jumped approximately 7% in March.

[Israel] consumer price index rose in March by 0.6%...Central Bureau of Statistics.
Apartment prices increased by 1% in February...
clothing and footwear increased by 2.0%,
...housing increased by 0.6%,
health increased by 0.5%
transportation increased by 0.4 %
ynet

— Israel Relief Aid (Registered Israeli Non-Profit) (@IsraelReliefAid) April 16, 2024

This inflation data comes shortly after Bank of Israel Governor Amir Yaron highlighted several risks that could contribute to sustained high inflation and borrowing costs. These include increased government spending due to the Hamas war in Gaza, a weakening shekel, and rising global oil prices.

Despite these challenges, the central bank reduced its base lending rate in January for the first time in nearly four years to help support the economy, which was being impacted by the ongoing conflict and a previously easing inflation environment. Since this rate cut, the Bank of Israel has maintained the interest rate at 4.5%, with potential future adjustments dependent on regional stability and easing inflationary pressures.

Looking forward, the agricultural sector anticipates price increases in controlled dairy products starting May 1, with significant hikes expected in the costs of basic milk products.

Inflation edges higher as housing costs and travel prices rise https://t.co/yUuUqXjUrL

— The Times of Israel (@TimesofIsrael) April 15, 2024

The real estate market is also experiencing a warming trend. Data shows a 1% increase in housing prices from January to February, with rents also rising. This trend is expected to continue due to high demand and low supply, exacerbated by a slowdown in building starts owing to a shortage of Palestinian construction workers amid the ongoing war.

Economists and market analysts are closely monitoring these developments, with the consensus being that if inflation remains within the government's target range of 1% to 3%, there could be room for a reduction in interest rates later in the year. However, the immediate future sees a low likelihood of rate cuts, primarily due to the recent unexpected surge in inflation rates.