The Bank of Israel released an updated set of inflation expectations indicators derived from multiple sources, including capital market breakeven inflation, private-sector inflation forecasts, banks’ internal interest rates and inflation contracts, across short- and longer-term horizons. The latest “current data” show one-year expectations of 1.8% from the capital market, compared with 1.9% from the average of inflation forecasts and 2.2% from both internal interest rates and inflation contracts; the capital-market measures imply 2.4% for the third-year forward rate, 2.4% for years 3–5 (forward), 2.3% for five years, and 2.1% for years 5–10 (forward). Breakeven inflation is defined as the ratio between yields on unindexed government bonds and CPI-indexed government bonds, and the Bank notes it embeds an inflation-risk premium and potential biases linked to taxation, liquidity and market depth, with one-year horizon biases assessed as greater than usual in January 2024. The release also explains that forward expectations are derived from breakeven rates for different maturities, that the forecast measure is a simple average of forecasts from commercial banks and economic consulting companies that report regularly to the Bank, that internal-rate expectations use data from the five large banks, and that inflation-contract expectations are based on average market quotes.
Bank of Israel 2025-04-22
Bank of Israel publishes updated inflation expectations data with one-year market breakeven at 1.8%
The Bank of Israel updated its inflation expectations indicators, showing one-year expectations of 1.8% from the capital market, 1.9% from average inflation forecasts, and 2.2% from internal interest rates and inflation contracts. The indicators, derived from various sources, also reveal forward rates of 2.4% for the third-year, 2.4% for years 3–5, 2.3% for five years, and 2.1% for years 5–10.