When economists around the world started to accept the fact about a year ago that global inflation was staging a ‘recovery’, the Bank of Israel tried to convince us that it ‘would not hit the Holy Land’.

Choose your excuse. We had a relatively strong economy. A strong shekel would protect us. A high-tech economy will not suffer too much. Aha! (See my blogs at the time.)

Today, the Bank of Israel has raised its lending rate by a relatively massive 0.5% to 1.25%. This is the third hike in four months, and should not be considered the last. “One-year inflation expectations are above the upper bound of the target range.”

There are some silver linings.

• Compared to other major economies, inflation at 4.1% is still relatively low.
• Inflationary expectations, as represented by movements in the capital markets, remain stable rather than aggressive.
• Unemployment is still under 4%.
• And the Treasury has much much extra money to dish out. (Useful before an election?)

Where to next? It is difficult to say. Wage inflation due to a tight labour market and a weakening shekel may only further stoke inflation. Strikes playing on the election factor (scheduled for 1st November) may also exacerbate uncertainty. And the price rises in Israel’s housing sector shows no sign of slacking off – over 15% in the past 12 months.

Economic growth in 2022 has been predicted at 5.0%, slightly down on original forecasts. The current estimate for 2023 is 3.5%.

Will any of this impact on how most Israelis will vote? Unlikely. Economics is rarely in the key factor on such decision making in the Holy Land.