Israeli CPI / Madad HaMachirim LaZarchan

The Israeli Consumer Price Index (CPI) — known in Hebrew as Madad HaMachirim LaZarchan (מדד המחירים לצרכן), abbreviated Madad (מדד, 'index') — is the principal measure of inflation in Israel, published monthly by the Israel Central Bureau of Statistics (CBS). Unique Israeli characteristics that distinguish it from US CPI: (1) Housing-heavy basket: the Israeli CPI basket weights housing (rent + owner-equivalent rent) at approximately 24-25% of total weight — significantly higher than many European CPIs but comparable to US CPI. Given Israel's severe housing shortage and continuously rising rents, housing CPI has driven above-trend overall CPI in most years since 2015; (2) CPI-linkage system: Israel's economy has a deep and pervasive CPI-linkage tradition dating from the hyperinflation era (1970s–1985). Many financial contracts automatically adjust with Madad: Galil government bonds, CPI-linked mortgage tracks, some pension obligations, and many long-term commercial leases are Madad-linked — meaning a 5% CPI rise automatically inflates both sides of these contracts by 5%; (3) Publication mechanics: Israeli CPI is published between the 10th and 20th of the following month. For example, December CPI is released in mid-January. Monthly variations are closely watched because of the CPI-linkage system — even a 0.5% CPI surprise in a given month directly increases the outstanding balance of millions of CPI-linked mortgages and bonds; (4) The January effect: January CPI in Israel is often negative (deflationary) because seasonal clothing and holiday discounts dominate in January, while summer months (especially July–August) see housing cost adjustments that produce positive spikes; (5) Bank of Israel inflation target: 1–3% annual inflation. The BoI's interest rate decisions are explicitly calibrated to return CPI to this range. In 2022–2023, Israeli CPI reached 5.4% (Dec 2022) — the highest in 14 years — driven by post-COVID supply chain disruption, housing shortage, and global energy prices; (6) Investment implications: during high-Madad environments, CPI-linked mortgage borrowers see their outstanding balances growing in nominal terms even while making full payments. Investors holding Galil bonds and CPI-linked Gemel/pension funds benefit, while holders of nominal Shahar bonds lose real purchasing power.

In December 2022, Israeli CPI hit 5.4% year-over-year. A homeowner with a ₪1.2M CPI-linked mortgage saw the nominal outstanding balance grow by ₪64,800 (5.4% × ₪1.2M) — entirely unrelated to their monthly payments. Simultaneously, their Galil-bond-heavy Keren Pensia grew 5.4% in nominal terms (preserving real value). For the Israeli bond investor: a 10-year Galil at 2% real yield delivered 7.4% nominal return in 2022 (2% real + 5.4% CPI), significantly outperforming the 4.5% nominal Shahar bond which delivered only -0.9% in real terms.