The Bank of Israel published updated measures of expected inflation drawn from the government bond market, the average of private-sector forecasts, banks’ internal interest rates and inflation contracts. The latest “current data” place one-year inflation expectations at 2.0% from capital-market breakevens, 2.2% from the average 12‑month-ahead forecast, 2.3% from internal interest rates and 2.3% from inflation contracts, with longer-horizon market-implied expectations clustered around 2.4–2.6%. Capital-market expectations are defined as breakeven inflation from the yield spread between unindexed and CPI-indexed government bonds, and are noted as containing an inflation-risk premium and potential biases linked to taxation, liquidity and market depth. The release also reports forward expectations derived from breakevens, including 2.2% for the second year forward, 2.5% for the third year forward, 2.4% for years 3–5 forward, 2.6% for five years and 2.6% for years 5–10 forward; it flags that, in the Bank’s assessment, one-year-horizon biases were greater than usual in January 2024.
Bank of Israel 2025-02-19
Bank of Israel updates inflation expectations indicators with one-year breakeven at 2.0%
The Bank of Israel released updated inflation expectations from various sources, with one-year forecasts at 2.0% from capital-market breakevens, 2.2% from private-sector forecasts, and 2.3% from both internal interest rates and inflation contracts. Longer-term market-implied expectations range from 2.4% to 2.6%, with noted biases in one-year forecasts as of January 2024.