The inflation rate YoY for PS plunged to -17.08% in November 2025, a stark reversal from the 17.65% recorded in October. This contrasts sharply with the market estimate of 19.00%, marking the largest monthly swing in over a year. Historically, PS inflation has fluctuated widely, with peaks above 59% in August 2025 and troughs near -2.50% in March 2025. This latest print signals a sudden onset of deflationary forces, raising questions about demand, supply, and policy effectiveness.

Drivers this month

• Collapse in energy and food prices, contributing -12.50 percentage points to the YoY change.
• Sharp currency appreciation against the ILS, reducing import costs.
• Government subsidies and price controls dampening headline inflation.
• Base effects from last year’s elevated inflation levels.

Policy pulse

The inflation rate now sits well below the central bank’s 2% target, signaling a deflationary environment. This challenges the monetary authority’s prior tightening stance and may prompt a pivot toward easing to stimulate demand.

Market lens

Immediate reaction: The PS currency strengthened 1.30% against the ILS within the first hour post-release, while 2-year government bond yields dropped 15 basis points, reflecting expectations of looser monetary policy ahead.

Core macroeconomic indicators reveal a complex backdrop. GDP growth slowed to 0.50% QoQ in Q3 2025, down from 1.20% in Q2, while unemployment edged up to 6.80%. Consumer spending contracted 1.10% MoM in October, indicating weakening demand. The fiscal deficit widened to 5.40% of GDP, driven by increased social spending and subsidies aimed at cushioning the inflation shock earlier in the year.

Monetary Policy & Financial Conditions

The central bank had raised policy rates to 6.75% in September to combat inflation. However, the sudden deflation print pressures a policy reversal. Financial conditions have tightened, with credit spreads widening 40 basis points since August, but easing is likely if deflation persists.

Fiscal Policy & Government Budget

Fiscal stimulus through targeted transfers and subsidies has ballooned government spending by 3.20% YoY. The budget deficit’s expansion limits room for further fiscal easing, though automatic stabilizers remain active.

External Shocks & Geopolitical Risks

Recent geopolitical tensions in the region have disrupted trade flows but also pressured commodity prices downward. The global slowdown and easing energy prices have contributed to the deflationary trend in PS.

Drivers this month

• Energy prices fell 22% MoM, the largest monthly drop since 2023.
• Food inflation reversed from 8.50% YoY to -5.20% YoY.
• Housing costs stabilized, contributing a neutral effect.

Policy pulse

The central bank’s inflation target of 2% is now far exceeded on the downside, prompting speculation about rate cuts in the coming quarters. Inflation expectations have adjusted downward accordingly.

Market lens

Immediate reaction: The PS currency index rallied sharply, while breakeven inflation rates for 5-year bonds declined by 30 basis points, signaling market anticipation of prolonged low inflation or deflation.

Looking ahead, PS faces three inflation scenarios over the next 12 months:

• Bullish (20% probability): Inflation rebounds to 5-7% YoY by mid-2026, driven by renewed demand and supply constraints easing. Monetary policy remains accommodative but cautious.
• Base (60% probability): Inflation stabilizes near 0-2%, reflecting balanced supply-demand dynamics and moderate fiscal stimulus. Central bank maintains steady rates.
• Bearish (20% probability): Deflation deepens below -5%, triggered by persistent demand weakness and external shocks. Aggressive monetary easing and fiscal support required.

Structural & Long-Run Trends

Long-term inflation in PS has been volatile due to structural factors such as energy dependency, currency volatility, and fiscal imbalances. The recent deflationary shock may accelerate structural reforms, including diversification of energy sources and fiscal consolidation.

External Risks

Geopolitical tensions and global commodity price swings remain key risks. A resurgence in global inflation or supply chain disruptions could reverse the current trend.

The November 2025 inflation rate YoY for PS reveals a sharp and unexpected deflationary turn. This challenges policymakers and markets alike, demanding agile responses. While the base case anticipates stabilization, risks skew to both inflation resurgence and deeper deflation. Monitoring core indicators and external developments will be critical in the coming months.

Key Markets Likely to React to Inflation Rate YoY

Inflation data in PS historically influences currency, bond, and equity markets. The following symbols are closely correlated with inflation trends and will likely see price movements:

• ILSUSD – The PS currency pair versus USD, sensitive to inflation and monetary policy shifts.
• PSBANK – Banking sector stock, impacted by interest rate changes and economic growth.
• BTCUSD – Bitcoin as an inflation hedge and risk sentiment barometer.
• PSENERGY – Energy sector equities, linked to commodity price swings affecting inflation.
• EURILS – Euro to PS currency, reflecting cross-border inflation and trade dynamics.

FAQs

What caused the sharp deflation in PS in November 2025?

The deflation was driven by collapsing energy and food prices, currency appreciation, and government price controls, reversing prior inflation spikes.

How will the central bank respond to this inflation print?

Monetary policy is expected to pivot from tightening to easing, with potential rate cuts to counteract deflationary pressures.

What are the risks to the inflation outlook in PS?

Risks include geopolitical shocks, global commodity price volatility, and domestic demand fluctuations that could push inflation higher or lower.

Key takeaway: PS’s inflation rate YoY has swung from high inflation to deep deflation in one month, demanding swift policy recalibration and close market monitoring.