Inflation soars by 1.5 percent in April
CPI exceeds most pessimistic predictions
By Moti Bassok
The consumer price index rose by a steep 1.5 percent in April, far exceeding even the most pessimistic predictions.
As a result, inflation for the first four months of the year stands at 3.9 percent, or 0.9 percentage points above the upper limit of the government's target for the entire year - 2.0 to 3.0 percent.
In response to the increase, the Bank of Israel will almost certainly raise interest rates sharply later this month. Government economists predict the rate hike will be between 0.8 and 1.0 percent.
The April CPI rise, anomalous at a time when the economy is in recession, sent shock waves through the political and economic systems. Particularly unexpected was the fact that every single component of the index rose.
Finance Minister Silvan Shalom and Bank of Israel Governor David Klein declined to comment yesterday, but the the treasury put out a statement saying the rise in the CPI underscored the need for rapid Knesset approval of its emergency economic program, with no alterations. The program calls for a combination of budget cuts and tax hikes.
Histadrut labor federation Chair Amir Peretz, however, immediately declared that the April inflation figure was proof that the treasury plan should be scrapped, since it will further harm the poor - the very ones who are already suffering from high inflation.
Treasury economists said the main reason for April's inflation was the sharp depreciation of the shekel against the dollar, which impacted on several categories of the index. The effect has been particularly pronounced in housing prices, which are dollar-linked: housing prices have risen 9.7 percent since the shekel's slide began four months ago, compared to 13.2 percent in the 12 preceding months.
Treasury Director-General Ohad Marani thus hastened to blame Klein for the entire debacle, saying it was his decision to cut interest rates by 2 percent in December that sparked the run on the dollar. But senior Bank of Israel officials pointed their fingers at the treasury, saying it was the latter's irresponsible fiscal policy that created the economic crisis.
Another factor, treasury officials said, was that due to the recession, the business sector has frozen prices for months, despite the fact that the shekel's depreciation had made key inputs such as fuel and imported raw materials more expensive. It was always clear that at some point they would not be able to keep prices frozen any longer, and that point was apparently reached in April.
The other two important factors were yet another sharp rise in fuel prices in April and a seasonal rise in produce and clothing prices. A 60.3 percent rise in tomato prices, for instance, singlehandedly contributed 0.12 percentage points to April's increase - 8 percent of the total rise.