Diamond
Investment
Savings
Account
Inflation In Israel
Far Above Target
D
ecember's relatively mod-
erate Consumer Price In-
dex (CPI) rise of 0.8 percent
provided little comfort to
the Israeli government because
it brought the 1994 inflation lev-
el to 14.5 percent, far above the
Treasury's 8 percent target.
"We didn't achieve the goal we
set because fruit, vegetable and
housing prices helped accelerate
inflation," Finance Minister Avra-
ham Shohat said after hearing
the Central Bureau of Statistics'
announcement.
According to the bureau, veg-
etable and fruit prices, which shot
up 56.1 percent last year, con-
tributed 2.5 percentage points to
the year's inflation. In 1993, veg-
etable and fruit prices dropped
1.2 percent.
Similarly, housing prices
jumped 23.6 percent, contribut-
ing 5 percent to inflation. The in-
crease was similar to 1993's 23.7
percent rise.
Even when these elements are
factored out, inflation reached 9.8
percent, still higher than the gov-
ernment's target. Inflation was
11.25 percent in 1993.
Bank of Israel Governor Jacob
Frenkel said December's index
showed "that we must tighten our
belts because the fight against in-
flation will be a long one."
Capital Holdings' chief econo-
mist Jonathan Katz pointed out
that last month's resurgence in
housing prices went against most
people's expectations and showed
that housing prices are still not
under control.
In view of the Cabinet's moves
to cut taxes and government
spending, as well as the more
moderate inflation rate, Mr.
Shohat said he expects Mr.
Frenkel will consider lowering in-
terest rates.
"There is no obligation for such
a move from the governor, but I
think it would be appropriate to
do something regarding interest
rates," Mr. Shohat said.
Knesset Finance Committee
chairman Gedalya Gal (Labor)
said that despite last year's dis-
appointing inflation rate, "we are
entering a period in which infla-
tion will decrease."
The cost of a standard basket
of goods and services for the av-
erage urban family rose to NIS
6,355, including housing, in De-
cember compared with MS 6,300
in November.
Excluding housing, the basket
cost NIS 4,890, compared with
NIS 4,845.
December's CPI rise brought
the index to 119.7 points corn-
pared with 118.7 points in No-
vember.
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1994 inflation
was 14.5 percent.
Don't Blame Rate
On Housing, Produce
he Israeli government
protests vigorously that
"were it not for the price of
housing and fresh produce,"
all would be well.
However, a quick look at the
figures indicates that this is far
from so.
If housing and produce costs
are removed from the 1994 con-
sumer price index, the inflation
rate was 9.8 percent, clearly be-
yond the Treasury's 8 percent tar-
get.
Moreover, prices in several oth-
er subsectors increased at a dou-
ble-digit rate. Health care costs
rose 15.8 percent, education 10
percent and transportation and
communications 10.1 percent.
So the major factor behind the
debacle was as much Avraham
Annual
Percentage
Yield.
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Shohat's inability to withstand
public sector wage demands as it
was Ya'acov Tsur's inability to act
as agriculture minister (rather
than the farmers' minister).
Higher taxes and interest rates
likely will push inflation down
this year, but Israel is clearly a
long way away from the kind of
price stability fully developed
countries aim for and achieve.
While progress has been made
in certain areas of the economy,
there remain a great many struc-
tural problems. Lobbies and pro-
tectionism still abound.
Does Mr. Shohat have the
backbone to tackle vested inter-
ests, dismantle monopolies, and
cut government spending? So far,
the answer is no. ❑
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