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Inflation jumps by highest monthly rise in five years

Jerusalem Post
August 15, 2002


The consumer price index for July rose 0.6 percent, the highest monthly jump in five years.

Inflation is now set to run at 8.5 percent, well above the government goal of 2-3 percent.

A wide range of categories became more expensive including foodstuffs, household upkeep, health, transportation and communications.

These rises were partially mitigated by a drop in housing costs and end-of- summer sales that lowered retail apparel prices.

Excluding a fall in housing costs, which is a direct result of the appreciation of the shekel against the dollar, the CPI rose 1.1%.

Wholesale prices were up 0.5%, while construction inputs were up 1.4% due to shortened work days for construction workers, mostly Palestinians who were delayed by military curfews.

Most economists expected the CPI to rise by 0.3% to 0.4%, although a minority hit the target or overshot. The consensus was that unemployment, a strong shekel and an economic slowdown would keep inflation low in July.

Additional factors that caused a rise in the CPI include a one percentage point rise in Value Added Tax to 18% in the middle of June. July was the first full month that the VAT was 18%. Government-regulated fuel prices also rose.

Amir Peretz, chairman of the Histadrut labor union, said July's CPI gives more strength to a demand for a cost of living raise.

"These are not isolated price rises," he said. "Basics like foodstuffs, health and
transportation got more expensive. A package deal must be reached with inflation compensation as its centerpiece in order to ensure social stability."

Oded Tyra, head of the Board of Economic Organiztions, established to negotiate with the Histadrut, said the rise in the CPI was expected.

"But it represents the last wave of inflation. In coming months the CPI will
fall," he said. "I expect zero growth in August. Amir Peretz needs to have patience. Businesses that are losing money cannot withstand a wage hike. It will result in a new round of layoffs and may bankrupt businesses."



Israeli Central bank may raise interest rates, July CPI rises 0.6%

By Moti Bassok and Ora Koren,
Ha'aretz & The Marker
August 14, 2002


Bank of Israel Governor David Klein is expected to raise interst rates after Israel's consumer price index rose 0.6 percent in July, the upper range of analysts' forecasts and the highest rise for the month of July since 1997.

The rise has pushed the annual inflation rate up to 8.5 percent.

Before the CPI was released, officials at both the Finance Ministry and the central bank had predicted that Klein would cut interest rates slightly or leave them unchanged.

The wholesale price index, which indicates future index increases, went up by 0.5 percent in July.

The Histadrut labor federation will step up its demand that workers be paid a cost-of-living increase, since the year's high inflation has eroded workers' salaries to a degree not seen since the 1980s. (There were many years in the 1990s with higher inflation, but since cost-of-living increases were paid automatically during those years, wage erosion remained low.)

Histadrut Chairman MK Amir Peretz on Thursday called on the Coordinating Bureau of Economic Organizations, an umbrella group representing employers, to sign a cost-of-living increase agreement immediately.

Jerusalem's economic circles had reeled from the shocker 1.3 percent climb in consumer prices in June 2002, after having expected a moderate climb of 0.5 percent to 0.7 percent.

The CPI, which jumped for the seventh straight month, was pushed up by steep increases in most main consumer groups.

Many of the industries that increased their prices are state-owned; electricity, water, and public transportation contributed to sixty percent of the index increase, raising it by 0.367 percent.

Electricity prices went up by 11.2 percent, VAT rose from 17 to 18 percent, the cost of water for private consumption increased by 9.1 percent and bus fares went up by four percent.

In the private sector, travel abroad jumped 7 percent in cost.

Food prices rose by about 1 percent, rent by 3.9 percent. Health, transport and communications prices increased by 1.1 percent.

The gains were moderated by seasonal drops in prices of clothing and footwear.

The index of retail prices rose by 0.5 percent and the index of building materials for housing climbed 1.4 percent.

Most noticeable were the considerable price hikes that came despite a 4.4 percent revaluation of the shekel to the dollar.