Amid war with Hamas, annual pace of inflation eases in October

Annual inflation eases to 3.7% ahead of Bank of Israel interest rate decision on Nov. 27; war expected to affect economy, dampen growth prospects

Sharon Wrobel is a tech reporter for The Times of Israel.

The busy aisles at a Rami Levy supermarket in Pardes Hannah-Karkur, on October 10, 2023. (Gavriel Fiske/ Times of Israel)
The busy aisles at a Rami Levy supermarket in Pardes Hannah-Karkur, on October 10, 2023. (Gavriel Fiske/ Times of Israel)

Israel’s annual inflation rate over the past 12 months eased to 3.7 percent in October from 3.8%, the Central Bureau of Statistics said Wednesday, as the war with the Hamas terror group broke out.

The annual inflation rate, which is still above the government target range of between 1% to 3%, has been declining from 4.1% in August.

In an attempt to bring the annual inflation rate within the government range, the Bank of Israel has, over the past 18 months, steadily hiked interest rates from a record low of 0.1% in April 2022 to 4.75% this year. The high interest burden already began to take a toll on households and mortgage holders even before the outbreak of the war.

On October 7, as many as 3,000 terrorists led by Hamas burst through the border with the Gaza Strip, by land, air, and sea, and rampaged murderously through southern communities, killing some 1,200 people, mostly civilians. At least 240 hostages, including babies and octogenarians, were abducted to Gaza under the cover of a bombardment of thousands of rockets fired at Israeli towns and cities.

The ongoing fighting, which is expected to cause damage to the Israeli economy and its growth prospects, could further bring down inflation in the coming months as demand falls, consumers tend to spend less, and prices begin to fall.

“The October index, combined with the sharp strengthening of the shekel in the recent period, increases the possibility of an interest rate cut by the Bank of Israel, if not at the upcoming decision, then at the next one on January 1,” Israel Discount Bank chief economist Nira Shamir said following the release of the October inflation figures.

Nearly empty shelves in the baby care section, at a Rami Levy supermarket in Pardes Hannah-Karkur, on October 10, 2023. (Gavriel Fiske/Times of Israel)

The Bank of Israel’s monetary policy committee will announce its next interest rate decision on November 27.

Since the start of November, the shekel recouped all of the heavy losses it suffered in October, gaining more than 6%, as investors are becoming less pessimistic about an escalation in the north of the country and the eruption of a broader regional war. That is after the local currency hit an 11-year low against the dollar in October. A weaker shekel is making imports of goods more expensive.

On a month-over-month period, the consumer price index (CPI), a measure of inflation that tracks the average cost of household goods, accelerated 0.5% in October, according to Central Bureau of Statistics data. The monthly figure is slightly above analysts’ expectations of an increase of 0.4%. In September, the CPI surprised to the downside, declining 0.1%.

In October versus September, notable increases were seen in the cost of clothing and footwear, which jumped by 3.9%, vegetables and fruit, which were up by 3.2%, transportation costs increased by 1% and food by 0.9%.

Meat and poultry prices rose by more than 2% as the onset of the war, in particular the first days, led to supply disruptions and logistical difficulties. These were offset by price declines in culture and entertainment costs, which decreased by 0.9% and housing which was down 0.4%.

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