Israel’s economy is sending a clear signal of stability amid a continued tense security situation. Inflation is falling, the rating agency Moody’s sees no immediate pressure on Israel’s credit rating, and even the real estate market is showing a noticeable cooling after years of high prices.
Inflation falls within the Bank of Israel’s target range
The Israeli consumer price index remained unchanged in June 2026. This means that annual inflation was only 1.6 percent, down from 1.9 percent in May. The inflation rate is thus clearly within the Bank of Israel’s target range of 1 to 3 percent.
This is important news for Israeli households. After years of rising living costs, expensive food, high rents, and growing uncertainty, a decline in inflation doesn’t yet mean real relief in daily life, but it does take pressure off the system. Prices are rising more slowly, and some sectors even became cheaper in June.
Prices for fresh fruit and vegetables fell particularly sharply, by 5.2 percent. Clothing and shoes became 2.7 percent cheaper. Transportation costs also decreased, by 0.7 percent, fuel by 3.1 percent, and international travel by 1.6 percent. Furniture and household goods also became less expensive.
At the same time, there were areas where prices continued to rise. Culture and entertainment became 1 percent more expensive, housing costs 0.7 percent, healthcare services 0.6 percent, and groceries 0.4 percent. This shows that inflation has fallen significantly, but everyday life remains expensive for many Israelis.
Israelis buy a lot, even during high inflation. Photo: Yonatan Sindel/Flash90
The real estate market is also showing signs of movement. Apartment prices not included in the general consumer price index fell by an average of 1 percent between April and May. Compared to the same period last year, prices were 2 percent lower. The decline was particularly pronounced in Tel Aviv, where prices dropped significantly, according to Globes. Prices also fell in Jerusalem.
This development is economically significant. For years, the Israeli real estate market was considered one of the biggest burdens for young families and the middle class. A decline in prices can relieve pressure on the market, but it is also a sign that high interest rates, uncertainty, and consumer reluctance to buy continue to have an impact.
Moody’s recognizes strength, but warns of risks
In parallel with falling inflation, Moody’s published its semi-annual report on the Israeli economy. The international rating agency made no change to Israel’s credit rating. The rating remains at Baa1, and the outlook remains stable.
This isn’t an upgrade, but it’s still a positive signal in the current situation. Moody’s currently sees neither immediate upward nor downward pressure on Israel’s rating. The reasoning is twofold: On the one hand, there’s an economy with strong macroeconomic data. On the other hand, the geopolitical situation, the war, high defense spending, and the upcoming Knesset elections remain significant sources of uncertainty.
Moody’s downgraded Israel’s credit rating for the first time in 2024. A further downgrade of two notches followed in September 2024, when Israel’s rating fell from A1 to Baa1. The decision was a severe blow to international confidence in the Israeli economy and primarily reflected the risks posed by war, political instability, and rising government spending.
Since then, the situation has partially stabilized. In January 2026, Moody’s raised its outlook for Israel from negative to stable. S&P had already given a similar signal in November 2025, improving its outlook for Israel. For the markets, this means that the rating agencies still see Israel under pressure, but no longer in immediate danger of collapse.
Moody’s cites several factors that could lead to future improvements. These include a further decline in geopolitical risks, a shrinking budget deficit, and credible fiscal discipline measures. The deficit fell to 3.3 percent of gross domestic product in June.
This is precisely where Israel’s core economic contradiction lies. The country has been waging a protracted war on multiple fronts since October 7, 2023. Its defense budget is high, companies are short of reservists, and investors are closely monitoring political developments. Despite this, the economy remains remarkably resilient.
The decline in inflation, the stabilization of its credit rating, and the cooling of the real estate market show that Israel has not slipped into a classic wartime economic crisis. The country is paying a high price, but its macroeconomic foundation remains strong.
This is good news for the government, but it’s not a free pass. Moody’s is waiting. The markets are waiting. And Israeli citizens are also waiting to see if falling inflation will eventually become noticeable in the supermarket, in their rent, and in their bank accounts.
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