Israel's Consumer Price Index dropped 0.3 percent during May, according to data published by the Central Bureau of Statistics. The fall exceeded analyst projections, which had anticipated a decrease between 0.1 percent and 0.2 percent.

Yearly inflation now registers at 1.9 percent, sitting below the Bank of Israel's preferred band. Forecasters anticipate the June reading will fall another 0.1 percent, followed by a 0.4 percent rise in July.

The softer outcome stemmed largely from the shekel's strength against the dollar throughout May. This currency shift triggered notable reductions in fresh produce costs and transport expenses, including a seasonal easing in flight prices.

Housing values, tracked separately from the CPI, declined 0.3 percent in the most recent period and stood 1.3 percent lower than one year earlier. Jerusalem posted the largest monthly decrease, whereas Tel Aviv saw prices resume their climb.

The rental sector remained under strain. Tenants renewing contracts faced a 2.5 percent increase in May, while incoming renters paid 6.8 percent more on average than previous occupants.

The milder inflation figure has reduced pressure on Bank of Israel Governor Prof. Amir Yaron. Despite rising global price pressures that led to a 0.25 percent rate hike in Europe, Israeli inflation stays well inside the central bank's target zone.

The Bank of Israel will release its next rate decision on July 6. Markets expect a 0.25 percent cut, though some observers allow for a possible 0.5 percent reduction.

Effects from the Iran agreement have already influenced worldwide markets. Oil prices slipped below 95 dollars per barrel, and restored trade routes should alleviate supply constraints, gradually supporting lower costs and subdued inflation.

The Tel Aviv Stock Exchange responded negatively to the pact. Banking and insurance shares led the declines. The dollar opened weaker versus the shekel but recovered to close nearly flat.