Israel’s inflation expectations for November 2025, as reported by the Sigmanomics database, registered at 1.60% year-over-year (YoY). This figure is below the market consensus of 1.90% and down from the prior month’s 1.90%. The easing signals a moderation in price pressures perceived by consumers and businesses, reflecting a shift from the elevated inflation environment seen earlier this year.

Drivers this month

• Energy prices stabilized after summer volatility, reducing headline inflation pressure.
• Housing costs contributed modestly, with shelter inflation easing to 0.15 percentage points.
• Food prices showed slight upward pressure but remained contained overall.

Policy pulse

The 1.60% reading sits comfortably within the Bank of Israel’s inflation target band of 1–3%. This suggests that recent monetary tightening measures have begun to anchor expectations effectively. The central bank’s cautious stance on interest rates remains justified given the downward revision in inflation sentiment.

Market lens

Immediate reaction: The Israeli shekel (ILS) appreciated modestly by 0.30% against the US dollar within the first hour post-release, reflecting confidence in subdued inflation risks. Short-term government bond yields (2-year) declined by 5 basis points, indicating easing inflation premium. Breakeven inflation rates also softened slightly, consistent with the print.

Core macroeconomic indicators underpinning inflation expectations show a mixed but generally stable picture. GDP growth for Q3 2025 was revised upward to 3.10% annualized, supported by resilient domestic demand and export strength. Unemployment remains low at 3.70%, sustaining wage growth near 2.50% YoY, which tempers inflationary pressures.

Monetary Policy & Financial Conditions

The Bank of Israel has maintained its policy rate at 3.50% since September, balancing inflation control with growth support. Financial conditions remain neutral, with credit growth steady at 4.20% YoY and mortgage rates stable around 4.10%. Inflation expectations below 2% reduce the urgency for further tightening.

Fiscal Policy & Government Budget

Fiscal discipline continues, with the government projecting a deficit of 3.80% of GDP for 2025, down from 4.20% in 2024. Public spending is focused on infrastructure and social programs, with limited inflationary impact. The budget framework supports macro stability and helps anchor inflation expectations.

External Shocks & Geopolitical Risks

Regional geopolitical tensions remain a risk factor but have not materially affected inflation expectations this month. Global commodity prices have stabilized, reducing imported inflation risks. However, potential supply chain disruptions from geopolitical flare-ups warrant monitoring.

Drivers this month

• Energy price normalization contributed -0.12 pp to the decline.
• Lower transportation costs reduced inflation expectations by -0.08 pp.
• Core services inflation remained steady, limiting further declines.

Policy pulse

The Bank of Israel’s forward guidance and recent rate hikes appear effective in anchoring expectations near target. The current reading supports a pause in tightening, with the central bank likely to monitor incoming data closely.

Market lens

Immediate reaction: The 2-year government bond yield dropped 5 basis points, reflecting reduced inflation risk premium. The ILS/USD exchange rate strengthened slightly, signaling market confidence in subdued inflation pressures.

Looking ahead, inflation expectations in Israel face a range of scenarios shaped by domestic and external factors. The baseline forecast anticipates a gradual rise to 1.70% over the next six months as global demand stabilizes and wage growth continues moderately.

Bullish Scenario (20% probability)

Stronger-than-expected productivity gains and fiscal consolidation push inflation expectations down to 1.30%, enabling a more accommodative monetary stance and supporting growth.

Base Scenario (60% probability)

Inflation expectations hover around 1.60–1.80%, consistent with the Bank of Israel’s target. Monetary policy remains steady, balancing inflation control with growth support.

Bearish Scenario (20% probability)

External shocks, such as renewed geopolitical tensions or commodity price spikes, drive expectations above 2.00%, prompting tighter monetary policy and potential growth headwinds.

Structural & Long-Run Trends

Long-term inflation expectations in Israel have trended downward over the past decade, reflecting improved monetary credibility and fiscal discipline. The current print aligns with this trend, suggesting that inflation is well-anchored despite short-term volatility.

Israel’s November 2025 inflation expectations reveal a moderation in price pressures, supported by stable core macro indicators and prudent policy. The easing below market estimates signals confidence in the Bank of Israel’s inflation targeting framework. However, vigilance remains essential given external risks and potential supply shocks. Market reactions underscore cautious optimism, with the shekel strengthening and bond yields easing. Structural trends favor continued anchoring of inflation expectations, but policymakers must remain agile to respond to evolving conditions.

Key Markets Likely to React to Inflation Expectations

Inflation expectations directly influence interest rates, currency strength, and equity valuations in Israel. The following tradable symbols historically track inflation sentiment and monetary policy shifts:

• TA35 – Israel’s benchmark equity index, sensitive to inflation and interest rate changes.
• USDIILS – USD/ILS currency pair, reflecting inflation-driven currency moves.
• BANKIL – Major Israeli bank stock, impacted by interest rate expectations.
• BTCUSD – Bitcoin, often viewed as an inflation hedge and risk sentiment barometer.
• EURILS – Euro to Israeli shekel pair, sensitive to regional inflation and geopolitical risks.

FAQs

What are the current inflation expectations in Israel?

As of November 2025, inflation expectations stand at 1.60%, below the previous 1.90% and market estimates.

How do inflation expectations affect monetary policy in Israel?

Lower inflation expectations reduce pressure on the Bank of Israel to raise interest rates, supporting a stable policy stance.

What external risks could impact Israel’s inflation outlook?

Geopolitical tensions and global commodity price shocks remain key downside risks to inflation stability.

Takeaway: Israel’s inflation expectations are moderating, signaling effective policy anchoring but requiring ongoing vigilance amid external uncertainties.