The Bank of Israel published updated indicators of expected inflation drawn from several sources, combining market-based breakeven inflation from government bonds with 12‑month-ahead forecast averages and one‑year expectations inferred from banks’ internal rates and from inflation contracts. The latest “current data” show one‑year expectations at 1.9% from the capital market, versus 2.5% in the average of forecasters, and 2.0% from both large banks’ internal interest rates and inflation contracts; market-based expectations were 2.0% for five years and 2.3% for the five-to-ten-year forward horizon. The release provides annual data for 2020–2024 and monthly data through May 2025, alongside the methodology. Breakeven inflation is defined as the ratio between yields on unindexed government bonds and CPI-indexed government bonds, and is described as incorporating an inflation-risk premium and potential biases linked to taxation, liquidity and market depth, with the Bank of Israel assessing that one‑year-horizon biases were greater than usual in January 2024. One‑year expectations based on internal interest rates are derived as a ratio between unindexed and CPI-indexed rates, with each bank’s internal rate calculated from its marginal funding and lending prices; “current data” for market, internal-rate and contract measures are CPI-month averages, while the forecast measure averages projections revised after CPI publication.
Bank of Israel 2025-06-19
Bank of Israel updates inflation expectations series with one-year breakeven inflation at 1.9%
The Bank of Israel released updated indicators of expected inflation, showing one-year expectations at 1.9% from the capital market, 2.5% from forecasters, and 2.0% from both large banks’ internal rates and inflation contracts. The data, covering 2020–2024 annually and monthly through May 2025, highlights breakeven inflation and potential biases, with the Bank noting greater-than-usual biases in January 2024.