The Bank of Israel published updated statistics on inflation expectations derived from the capital market, forecasters, banks’ internal interest rates and inflation contracts. The latest “current data” put one-year inflation expectations at 2.0 percent from capital-market breakevens, versus 2.1 percent from the average of 12-month-ahead forecasts, 2.3 percent implied by the internal interest rates of the five large banks and 2.3 percent from inflation contracts. Market-based forward measures implied 2.2 percent inflation in the second year (forward), 2.4 percent in the third year (forward), 2.4 percent for years 3–5 (forward), 2.4 percent over five years and 2.2 percent for years 5–10 (forward). In the monthly series, one-year breakeven inflation eased from 3.2 percent in January 2024 to 2.4 percent in December 2024 and 2.0 percent in the current reading. The release reiterates that breakeven inflation is calculated from the yield gap between unindexed and CPI-indexed government bonds and embeds an inflation risk premium and potential biases from differences in taxation, liquidity and market depth, noting that one-year-horizon biases were greater than usual in January 2024; forward expectations are derived from breakeven rates for different maturities.
Bank of Israel 2025-03-19
Bank of Israel updates inflation expectations measures with one-year market-based reading at 2.0 percent
The Bank of Israel released updated inflation expectations, showing one-year inflation at 2.0% from capital-market breakevens, 2.1% from 12-month forecasts, and 2.3% from banks' internal rates and inflation contracts. Market-based forward measures indicate inflation at 2.2% in the second year, 2.4% in the third year, and 2.2% for years 5–10, with breakeven inflation calculated from the yield gap between unindexed and CPI-indexed government bonds.