Inflation expectations edge higher as economic activity rebounds

ISRAEL - In Brief 18 Aug 2026 by Sani Ziv
Forecasters’ inflation expectations increased slightly to 2.0% in August, from 1.9% in July and 1.8% in June. The increase followed a slightly higher-than-expected July CPI reading of 0.3%, compared with market expectations of 0.1%-0.2%. We expect the August CPI to rise by 0.8%, which could also push inflation expectations higher. The stronger-than-expected GDP data released earlier this week have also raised some concern over a renewed build-up in inflationary pressures. Q2 GDP expanded by 15.9% annualized, alongside rapid wage growth of 7.7% year-on-year and a still-tight labor market. Job vacancies increased further, pointing to continued strong demand for workers. While unemployment edged higher in July, it remains very low at 3.1%. This appears to be already reflected in inflation contracts, where 12-month expectations increased from 1.7% to 1.9%. In addition, oil prices are rising again, with Brent reaching $91.5 yesterday, as an agreement between the United States and Iran has yet to appear on the horizon, adding a potential source of inflationary pressure. Market-based inflation expectations, however, remained very low at 1.4%. This measure is calculated as an average over the CPI month, from the publication of the previous CPI through the latest available observation ahead of the upcoming CPI release and may therefore not yet fully reflect the latest data. We expect market-based expectations to move higher, bringing the different measures closer to around 2% over the next 12 months. Overall, inflation expectations remain relatively low, but the recent upward trend, together with an August CPI expected at around 0.8% and strong activity data, could work against...

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