Wage growth in Israel falls behind inflation

After a long period in which the average wage in Israel climbed consistently and outpaced inflation, wage growth has slowed recently. Wages continue to rise, but the cost of living is rising faster.

According to figures from the Central Bureau of Statistics, while the annual rate of inflation, at 3.1%, remains above the upper limit of the Bank of Israel’s 1-3% target range, the rate of wage growth is slowing. This is perhaps what is strengthening the feeling among many families in Israel that it is becoming harder for them to save. According to the Central Bureau of Statistics’ consumer confidence survey, whereas four years ago almost 40% of households succeeded in saving, the percentage has lately fallen to just 28%.

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Real wages, meaning the actual purchasing power of wages, represent the true measure of the standard of living. When prices rise faster than pay, people feel it in their pockets.

The good news is that the slowdown in wages growth should itself help to moderate inflation. Only a year ago, the Bank of Israel published a long study which found that the rise in wages was significantly pushing up consumption and prices. According to the study, a 10% rise in wages over and above the rise in productivity raised inflation by between 1% and 3%. If wages are static, inflation pressures reduce substantially.

Impact of the war

This, however, does not necessarily reassure the ordinary citizen. On average, households have become balanced, with income matching spending, but, unless the situation changes, says Meitav chief economist Alex Zabezhinsky, more and more households will not be able to make ends meet. Why so?

Zabezhinsky explains that the gap between the 2024 and 2025 figures is connected to the war. Wage data reported to the National Insurance Institute include payments to reserve soldiers, which are sometimes higher than their normal pay. “If a person is on reserve duty and receives more than when he is working, that artificially skews wage data higher.”

This phenomenon was particularly prevalent in late 2023 and in 2024, when there was a massive call-up of reservists, and hundreds of thousands of people disappeared from the labor market al at once, and average pay was inflated. Now, in a less intense period of fighting, the figures have balanced out.”

Published by Globes, Israel business news – en.globes.co.il – on September 9, 2025.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.