Israel faces inflationary pressures and a depreciating shekel

Political turmoil limits potential government measures to ease economic pressures

Business confidence is at its highest since January 2020, coming off the back of a strong economic recovery in 2021, and a booming stock market. However, there are clouds on the horizon: hikes in the benchmark rate will translate to higher lending rates, soaring energy prices will drive up input costs, and a weakening shekel will make imports more expensive. MNCs can thus expect higher business and operating costs. B2Cs will face challenging pricing decisions, particularly given the price sensitivity of the Israeli market and rising cost of living.


Naftali Bennett’s coalition has lost its majority, after its chief whip, MK Silman, resigned. This situation was further exacerbated when the Arab wing of the coalition temporarily suspended its membership following attacks on Muslim worshippers in Jerusalem. However, the opposition, led by Benjamin Netanyahu, failed to capitalize on the ruling coalition’s struggles, as it was unable to gather enough votes to dissolve the Knesset and call a new election.

Inflation reached 4% in April 2022, up from 0.8% in April 2021, driven by a tight labor market, a depreciating shekel, and soaring food and energy prices. The central bank has raised rates to 0.35%, with further hikes of up to 1.5% expected throughout the year. This pace of these hikes will be dictated by the performance of the shekel.

Our View

Bennett’s coalition will hang on—for now. While the immediate danger seems to have passed, further resignations remain possible, which would tip the coalition into minority territory. It also remains to be seen what legislation the government can pass without a majority, and measures to deal with increasing economic pressures could be delayed by political deadlock. 

Consumer spending will continue to be affected by the increasing cost of living. Despite a comparatively low headline inflation rate, the costs of basics, such as food and transportation, are rising at a sustained pace, putting particular pressure on lower- and middle-income segments and raising the risk of social unrest.

At FrontierView, our mission is to help our clients grow and win in their most important markets. We are excited to share that FiscalNote, a leading technology provider of global policy and market intelligence has acquired FrontierView. We will continue to cover issues and topics driving growth in your business, while fully leveraging FiscalNote’s portfolio within the global risk, ESG, and geopolitical advisory product suite.

Subscribe to our weekly newsletter The Lens published by our Global Economics and Scenarios team which highlights high-impact developments and trends for business professionals. For full access to our offerings, start your free trial today and download our complimentary mobile app, available on iOS and Android.