1. “Following Prime Minister Yair Lapid’s directive to find a solution to the increase in the prices of controlled bread, the Minister of Economy and Industry Orna Barbiei appealed to the food chains to temporarily delay the increase in the prices of the controlled bread. Barbiei appealed to the food chains Rami Levy, Shufersal, Victory and Yohannoff to suspend the increase in bread prices The supervised in the next two weeks. The chains agreed to her request despite the decision of the price committee in the Treasury for an update that is expected starting next Sunday. Also, the minister spoke with the representatives of the large bakeries, and intends to continue to hold a dialogue with them in order to find a government solution in response to the increase in prices for the production of supervised bread without harming consumers. Prime Minister There will be an urgent discussion on the issue with the relevant parties this coming Sunday,” read Prime Minister Yair Lapid’s statement on bread prices.
It was very unfortunate and frustrating to see the government bread festival earlier this week. I understand that bread is a basic and symbolic commodity, and I understand that its high price is a blow, another blow to the weaker sections, but to reach such a level of populism? To hold a discussion specifically about bread, whose composition in the basket of expenses of an average family is relatively low compared to other significant expenses, such as electricity and fuel, even among the weaker sections? And worse than that – throw in the air all kinds of illusory proposals of subsidies and flows to bakeries in order to moderate or freeze the price? What angers me the most is the timing. Why did you wake up just now? The answer is simple: populism swept the media which made its own bread festival, and as we know politicians respond to the media, they do not respond to the citizens.
It reminded me of the first round of declarations of “containment” of the price increases: threats were waved at large suppliers, such as Asam, in a kind of appeal to their hearts to freeze the price increases. But economics does not work that way and cannot work that way. This is not the day of the good deeds of a provider or of one or another network. A price increase that is stopped now is a price increase that will appear later without headlines about a “boycott” and without celebrating that we “succeeded” in stopping the price increase.
I’ve been writing this for months: the government had a very effective tool to moderate price increases by lowering taxes in a number of areas, including a more massive reduction in the fuel excise tax, and it still has that tool. When we don’t do this with excess taxes in the tens of billions of shekels, when the writing was on the wall, when it was clear that we were in a chain of increases, then why come now with foolish discussions about subsidizing the price of bread?
With this shortage of hands, we have reached an election period where the politicians are busy with survival and re-election, and the transitional government’s hands are tied in many ways in the economic field. This is the worst situation for the citizens, a situation that calls to all players in the market: “Come on, riot with the price increases”. Add to that a sleepy competition authority that organized its own festival with an investigated parade of retail chain executives a few months ago. The parade was photographed beautifully on television, but was as expected empty of content and did not promote the public interest in the slightest.
What has happened here in the last few months is, for me, a huge scandal, and I call it “citizens being held captive by their government”. The citizens – the employees and the business sector – flooded the country with huge tax surpluses when the economy emerged from the Corona crisis. The economy flew forward, unemployment returned to pre-crisis levels, economic activity took off and taxes soared. With these extra taxes, the government boasted that it had closed the deficit to almost zero. This means that she did it on the backs of the citizens. Instead of returning these tax collection surpluses to the public, to the source from which they came, she preferred to zero the deficit instead of keeping it at a relatively low level, and embarked on a campaign of patting herself on the back. come on. Did Lieberman, Bennett or Lapid or another minister reset the deficit through a brilliant economic policy? Definately not.
2. With all due respect to the populist bread festival and with all due respect to the more expensive food basket – and I’m not underestimating this, God forbid – the main expense of an average household is still housing prices, followed by transportation prices (car, fuel and also public transportation). In these two areas, external factors (world inflation) or internal factors (lack of competition, exclusive importers, etc.) cannot be blamed. The one who controls almost without Egypt in these two areas is the state, especially in real estate. It controls the very dominant taxation in both areas and it controls a large part of the land. It was in its hands, in the hands of every government, to take this issue of housing and push it with all its might for The consumers, for the sake of the young couples. But apart from a relatively short delicacy during Kahlon’s tenure, in which prices slowed down and even fell slightly, for over a decade it has been a waste of time with headlines and promises.
It is not surprising that during Kahlon’s time he was kidnapped by everyone who came close, precisely by all those who boast of economic understanding, after he “dared” to sell land cheaply to developers in a price-for-resident program. Sometimes it seems that the biggest enemy of falling prices is the one who sits in the government offices, especially the economic ones. Sometimes it seems that they don’t really want prices to drop, which is convenient for too many parties, including the party called “the Israeli government” because of the income from real estate taxes.
One number reflects the whole sad story of real estate: the value of the land in the hands of the state, which is published once a year in the government’s financial reports. It is admittedly a rough estimate, but even a rough estimate is good enough to illustrate the distortion. The Israeli government has land worth about 685 NIS 1 billion, most of it vacant land. Although a significant portion is not relevant, there is enough land that could be relevant to solving the problem in the housing market. As mentioned, there are those who do not want solutions.
3. A bank governor is also the government’s economic advisor. There are very dominant governors, such as Stanley Fisher, and there are governors who hide in the tools, such as the current Prof. Amir Yaron. At the beginning of the month, the Bank of Israel raised the interest rate by 0.5%, and Yron explained his economic review to the journalists. The main job of Yaron and the Bank of Israel is to take care of inflation, and for that it has the tool of interest, which of course has very wide effects. The review is comprehensive and explains from an overview of what is happening in the world and where Israel is. I chose to bring large parts of the review, I tried to find points in it that connect to the situation of the citizens and I added some comments after each paragraph.
“We are in a complex period in which significant processes are taking place, both in the local economy and in the global economy. Some of them are positive and indicate recovery after the crisis and symbolize the return to vigorous activity, some of which, by the way, are even higher than what was recorded before the crisis. But others are less positive and teach about difficulties in day-to-day functioning of the economy, increasing uncertainty, inflationary developments and the like” (the economy returned to full activity very quickly, but clouds of slowdown are hovering above – AC).
“The policy makers’ dealing with the complex of these processes is important for their success in an optimal way. The monetary policy adopted by the central banks has a lot of weight on the way in which economic processes will be shaped in the various economies and the way in which they will be reflected in the daily life of each and every one. Our main role is to work to return inflation to the target area while maintaining a high level, as much as possible, of economic activity” (My job is to make sure that inflation does not run amok, because it is reflected in the daily lives of all of us. Indeed, everyone feels it in the last year – a “c).
“The current increase in inflation is partly due to factors external to the Israeli economy, about which there is a lot of uncertainty, such as the war in Ukraine and the continued disruptions in global supply chains, but also from local inflationary processes against the background of economic activity in the economy” (not only the world is “guilty” of inflation, but also activity Accelerated local caused a price increase – AC).
“That is why we, in the monetary committee at the Bank of Israel, continue to adopt a process of monetary reduction. We are determined to return inflation to the target, and the process of monetary reduction is intended to realize this while taking into account all considerations and economic developments in Israel and the world. It is understood that we are not alone in adopting this policy, it is a global trend. In many other countries, inflation has exceeded the target, and the central banks are taking similar processes. It is worth remembering that the inflation environment in Israel is significantly lower compared to most OECD countries. However, I will repeat and emphasize: maintaining price stability is a cornerstone for regular economic activity and sustainable growth. High inflation Harms certainty and economic activity, and relatively more harms the weaker strata. The steps we are taking are a continuation of the same policy line we have been taking for some time. The Monetary Committee began a gradual process of reducing the monetary expansion already about a year ago, at the beginning of the second half of 2021. Then we announced the end A rating of the special tools we used during the corona crisis, such as the bond purchases and the monetary loan programs” (the interest rate increase process may/might continue to curb inflation – AC).
“In the analysis of inflation processes, we also give important weight to looking ahead – to expectations, forecasts and pricing in the various markets. The anchoring of expectations within the target is a very important factor in the management of monetary policy and moreover in its effect on many economic processes. In this context it can be said that expectations in Israel for the medium and long term are indeed anchored well within the target and have even decreased since the previous interest rate decision” (the interest rate increase is starting to work – OT).
Governor Amir Yaron (Photo: Yonatan Zindel, Flash 90)“I will move on to a look at the real activity and the relationship to inflation. The labor market continues to be tight. The employment rate has returned to its pre-corona crisis level and beyond. The number of vacancies is high in most industries. The tight labor market also leads to wage increases, especially in industries characterized by high demand for workers, and this has also an effect on the development of inflation” (the accelerated economic activity translated into a sharp decrease in unemployment, but as mentioned produced pressure on the price increase – OT).
“One of the most important public issues is housing prices – apartment prices and rents. Apartment prices continue to rise at a significantly higher rate compared to the rate of recent years, but the sharp upward trend in prices moderated a bit in the last month. The first quarter data shows a sharp increase in construction starts and building permits, But on the other hand, the completion of construction is still low. In this context, it is worth noting that reaching 20,000 construction starts in the first quarter of the year is a positive development that is important to preserve, since this market is also driven by the expectations of buyers and sellers” (the hardest blow that was discussed at the beginning of the article. The Governor sees ” A little” moderation, but the last index published after his words did not really confirm this – OT).
“Regarding the financial markets, he says that the capital markets in Israel and around the world saw significant declines in the leading indices with high volatility. This is against the background of increased uncertainty – the continuation of the war in Ukraine, the policy being adopted in China to deal with the epidemic, the increase in inflation and the tightening monetary policy in the world. In view of these, volatility was also recorded in the world high in government bonds alongside increases in corporate bond spreads. We are also exposed to the decline in the value of technology companies in the world as well as Israeli ones. At the micro level, there may certainly be difficulties for some of the companies in the industry. In this context, it is important for me to emphasize that the Israeli high-tech sector in 2022 is not similar to that of the year 2000. It is a high-tech sector with broad branch decentralization, revenues, liquidity and access to funding sources” (This is not the bubble of the year 2000 in high-tech. By the way, there is a recovery in the markets since the beginning of the month – AC).
“Overview, I would conclude that Israel’s economy is in a solid state in many aspects. Growth is high, the labor market is tight, the government deficit is low, tax revenues are rising and businesses continue to report an improvement in their situation. Just before another round of elections and an environment of political uncertainty, it is important to remember that uncertainty Uncertainty in general and political uncertainty in particular are not good for the economy. However, Israel’s economy has demonstrated an impressive ability to grow and prosper in the short term even under conditions of uncertainty. However, in order to ensure future growth of the economy, it is important to continue to practice fiscal responsibility during this period, and that any government that is elected will work to pass a state budget Upon her assumption of office while promoting the necessary reforms and investments” (our situation is excellent, but we need budgetary responsibility – OT).
Prof. Amir Yaron’s last paragraph is disappointing in my eyes. The last thing any average citizen needs today is to be told that our situation is excellent, that the labor market is tight, that the deficit is low, that tax receipts (from it) are increasing and that the uncertainty is increasing because of the elections, and that is why we need to practice “fiscal responsibility”. It seems to me that it does not comfort anyone that Israel is in a great economic situation and all its main indicators are satisfactory. The gap between “our situation is excellent” and “the situation of the citizens” only got worse in the last year.
Citizens are looking for solutions, they are not looking for general compliments. With compliments you don’t survive the month, with lowering taxes it was easier.
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1 comment
Thank you for sharing your expertise on this matter. I appreciate it when you mentioned how frustrating and unfortunate it is to see the government bread festival was held. Indeed, the government had an efficient tool to moderate price increases by minimizing taxes in a number of areas, including a more massive reduction in the fuel excise tax, and it still has a tool.