Inflation in Israel continues to rise. Only in the first third of 2022, prices have already risen by 2.2%. How will it end, who is to blame for it, and how can it curb inflation?
Global inflation is reaching Israel with great intensity, albeit less than in the Western world. Several reasons for this can be thought of when the three leading explanations are the huge money printing of the Federal Reserve, the US Federal Reserve, in order to finance the federal government’s corona spending, the decrease in commodity movement due to closures and reduced economic activity around the world, and the war in Ukraine Sanctions on Russia, which make up some of the world’s commodity prices, especially in food and energy. 13.1% in May) The rise in food prices in April was responsible for 20% of all inflation.
In Israel, too, inflation is hitting, albeit to a lesser extent so far. In April, for example, the consumer price index jumped by no less than 0.8%. Since the beginning of the year, inflation has been around 2.2% and in the last year as a whole it has stood at four percent. According to the Bank of Israel’s forecast, this year will end with annual inflation at a rate of 3.6%.
In Israel, in contrast to Europe, energy prices do rise, but at the average rate at which the entire index rises – only 0.8% in April itself. Although energy indirectly affects transportation costs, which have risen by about two percent, it is clear that the successful implementation of the gas outline has prevented Israel from inflating even more severely. Another sector is of course food prices which have risen, less fruit and vegetables, slightly less than the price index, 0.6%. The fruit and vegetable index itself rose by 2.8% and pulls the entire price index upwards. Clothing and footwear prices also rose by about 2.1% and together with transportation and fruits and vegetables, the price index is pulling upwards.
So what do you do then? Well, inflation is first and foremost a monetary phenomenon, i.e. one that is affected by the amount of cash we hold in our hands. This is the reason why the Bank of Israel began to raise interest rates slowly. The idea is to make loans cheaper on the one hand and make the savings more lucrative on the other. Thus, the public will most likely hold less cash in hand and inflation will slow down.
At the same time, Israel can lower prices, especially in industries that have become more expensive than others. Agriculture reform may lower fruit and vegetable prices within five years, but it is not yet complete and awaits changes to plant protection regulations that prevent the import of various crops. The “Zero Customs” program of the Ministry of Finance abolished tariffs on products on which light tariffs were imposed at a rate of up to 20%, a range of products ranging from furniture through hygiene to raw materials for industry.
Alongside them, the standard chapter of the import reform came into force this week. This step enables the import of hundreds of products, including strollers, changing tables, various electrical products, building materials, toys and more, on an international standard basis and without local regulation. This move may increase the range of products, lower prices and increase competition for hundreds of different products. The energy chapter, the cosmetics and then the food chapter will also come into force soon. Together these may moderate inflation significantly.
Elad Malka is the CEO and founder of the Public Lobby “Our interest – your lobby in the Knesset“