The Bank of Israel published an updated compilation of expected inflation derived from several sources, combining capital-market breakeven measures with professional forecasts and bank- and market-based pricing indicators. The latest “current data” show one-year inflation expectations from the capital market at 1.8 percent, with forward expectations at 1.8 percent for the second year and 2.1 percent for the third year and for years 3–5, alongside 2.0 percent for five years and 2.3 percent for years 5–10. The release explains that capital-market inflation expectations are derived as the ratio between yields on unindexed government bonds and CPI-indexed government bonds and embed an inflation-risk premium as well as potential biases from differences in taxation, liquidity, and market depth. It also notes that, in the Bank’s assessment, biases in one-year expectations in January 2024 were greater than usual. The table further reports the simple average of 12-month-ahead inflation forecasts collected regularly from commercial banks and economic consulting companies (2.4 percent in the latest “current data”), one-year expectations derived from internal interest rates of the five large banks (2.1 percent), and one-year expectations derived from inflation contracts based on market quotes (2.0 percent), with “current data” constructed as averages over the CPI month and all expectations presented in annual terms.
Bank of Israel 2025-05-20
Bank of Israel updates multi-source inflation expectations data with one-year market breakeven at 1.8 percent
The Bank of Israel released an updated compilation of inflation expectations, showing one-year capital market expectations at 1.8%, with forward expectations at 1.8% for the second year, 2.1% for the third year, and 2.3% for years 5–10. The report highlights potential biases in these expectations due to factors like taxation and liquidity, noting that one-year expectations in January 2024 were unusually biased.