Israel’s inflation accelerated more than expected last month, to 3.6% year-on-year, as the war in Gaza strains the economy and government spending soars.
The figure rose from 3.2% in July, Israel’s Central Bureau of Statistics reported on Sunday, and is now significantly above the country’s official inflation target, between 1% and 3%. Analysts had forecast the rate would remain stable, according to a Bloomberg survey.
Monthly inflation accelerated to 0.9% from 0.6%, the highest figure in more than two years. Respondents had expected a drop to 0.5%.
Prices for foreign travel and vegetables are among the items that have risen the most. Many foreign airlines have stopped flying to Israel for security reasons, while fewer ships are calling at the key Israeli port of Eilat due to Houthi attacks in the Red Sea. The construction and agricultural sectors have been hit by a shortage of Palestinian workers, who are no longer allowed to enter Israel from the West Bank and Gaza.
Prices for overseas travel rose by more than 22% last month, while tomatoes cost 37% more. Adding to the pressure is the increase in government spending to finance the conflict against Hamas in Gaza and dealing with clashes between Israeli forces and Hezbollah, a militant group based in Lebanon.
In recent months, the central bank has regularly expressed concern about the impact of the Gaza war on inflation. Despite the weakening economy, the bank’s deputy governor told Bloomberg in late August that interest rate cuts would likely not be considered until next year.
That will be the case, according to Andrew Abir, the deputy governor, even if the US Federal Reserve cuts rates on Wednesday, as most analysts expect it to do.
“Inflation has become unusually high, even by historical standards,” said Yonie Fanning, a strategist at Mizrahi Tefahot Bank. “The effects of the war on the economy in general and the price index in particular are still noticeable.”
