Cooling headline inflation in Israel is driven by nonessential goods deflation countering elevated inflation in food, housing, and transportation

A hit to consumer demand will slow inflation in 2024, while policy intervention will help limit severe shekel volatility

Multinationals should expect consumer spending habits to change sharply through Q4 2023, with a near complete halt of nonessential purchases. A shortage in inventory due to logistics disruptions will see a temporary window of little to no price sensitivity for essential goods in Q4, as households reallocate most of their wallet share to essential goods spending. However, price sensitivity for nonessential goods will rise, especially in Q1 2024. 

Some pent-up demand could be released in Q2/Q3 2024 for durable and nonessential goods, multinationals are advised to use scenario planning to accurately size the opportunity. Should the government provide sizable support to households, then savings will rise in Q4 2023 and Q1 2024, allowing for some increased consumption in these categories. The severity of the ongoing war on Gaza will dictate how Israeli households’ confidence will recover. As for B2Bs, depending on US financial support to Israel, an increase in construction and other industrial opportunities could arise. Here scenario planning is equally important. 

Scenario planning will be crucial in 2024, but equally difficult. To support some of the planning, multinationals are advised to monitor key risks: political instability and aftermath of PM Benjamin Netanyahu’s government collapse, risk of ongoing protests and disruptions in Israel as the probability of polarized politics rises, and elevated security risks throughout 2024. FrontierView recommends maintaining a flexible budget for Israel 2024 strategies, and multinationals should consider the opportunity costs when allocating resources and inventory to the Israeli market in relation to the entire region’s portfolio and performance goals. 


  • The Bank of Israel (BOI) announced that it will sell up to US$ 30 billion in reserves to support the exchange rate to stabilize the NIS.
  • Israel’s shekel hit multiyear lows in the days following the outbreak of war, hovering around the NIS 4.0/US$ mark.
  • Retail activity has been severely disrupted, with malls and other facilities reopening on an inconsistent basis geographically and on an unstable timeline.
  • Service sector activity has been constrained, while most schools have resorted to online learning, and universities have delayed the start of the academic year
  • Headline inflation has been easing in Q3, reaching 3.8% in September 2023. There is a divergence in categories, with food, housing and transportation prices remaining the key drivers of inflation, averaging 3.7%, 5.8%, and 5.8%, respectively. On the other hand, durable goods such as furniture and clothing saw large deflation, averaging -4.5% and -9.7%, respectively.
  • The BOI has signaled a potential rate cut in October or November should inflation continue its cooling.

Our View

FrontierView foresees two scenarios: a base case where the war on Gaza is contained to October/November 2023, the government receives fiscal support, and logistics disruptions abate by the end of 2023. The downside scenario sees continued conflict into late 2023/early 2024 with risks of rocket attacks extending, resulting in protracted disruptions, elevated insurance premiums, and shipping costs as secondary implications. 


  • In line with our base-case scenario, FrontierView expects inflation to ease to 4.0% in 2023, from 4.4% in 2022, and down to around 2.5% in 2024 driven by weaker-than-expected inflation in nonessential categories, dampening the rise from essential goods inflation. 
  • Food inflation will rise between Q4 2023 and mid-2024 as a result of disruptions to agricultural production in areas bordering Gaza, which account for 75% of Israel’s vegetable consumption, 20% of its fruit, and 6.5% of its milk. 
  • Durable and nonessential goods will likely draw discounting and promotional activities to incentivize consumption, keeping overall price increases unlikely and in deflation mode. 
  • In the downside scenario, inflation could spike close to 4.0% in 2024.

Exchange rate:

  • In line with our base-case scenario, the NIS will depreciate to 3.8/US$ in 2023 and further depreciate to around 3.9/US$ in 2024, where the BOI will keep it fixed throughout the year. 
  • Multinationals will not likely face any disruptions in accessing FX, as the central bank enjoys a large reserve position, exceeding US$ 200 billion, potentially deterring speculators in financial markets. Israel enjoys relatively easy and affordable access to international credit markets, further minimizing the risk of any FX scarcity.
  • In the downside scenario, we could see further volatility in the NIS, depreciating beyond 4/US$.

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.