Israel's annual inflation rate eased more than expected to 3.1% in May, official data showed on Sunday, although it is still slightly above target and the escalation of the country's conflict with Iran poses additional risks to the outlook.
Inflation (ILCPIY=ECI) eased from 3.6% in April when it was boosted by a spike in airfares.
The May rate was below expectations of 3.4% in a Reuters poll and stayed above the government's 1%-3% annual target range.
Government officials have largely blamed war-related supply issues for a spike in inflation over the past year, even as price pressures eased globally. Israel's central bank believes demand is also helping to keep prices high. It will now be watching to see how the sudden escalation in Israel's conflict with Iran in recent days, which has already pushed oil prices higher, affects overall prices.
Israel's annual inflation rate reached 3.8% in January, its highest level since September 2023. The central bank in April projected a 2.6% rate for 2025.
On a monthly basis, the consumer price index (ILCPI=ECI) fell by 0.3% in May from April, after a 1.1% rise the prior month, led by declines in the cost of transport and telecommunications, fresh vegetables and housing services, the Central Bureau of Statistics' data showed.
These were partly offset by higher prices of fresh fruits, clothing, entertainment, health and food. A Reuters poll had expected a 0.1% rise month-on-month.
The Bank of Israel on May 26 held its benchmark interest rate at 4.5% due to inflation worries stemming from Israel's war with Hamas militants in Gaza.
A day later, Bank of Israel Governor Amir Yaron told Reuters that monetary policy needed to remain "cautious" given the uncertain geopolitical situation and near-term inflation environment, with policymakers ready to delay any rate cuts until inflation eased.
The next policy decision is slated for July 7.
