Commentary: Prices rise as social protests wane

Three categories were the main factors contributing to the 0.4 percent rise in the Consumer Price Index (CPI) in March.

April 18, 2012 23:35
2 minute read.
Economic outlook.

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Three categories were the main factors contributing to the 0.4 percent rise in the Consumer Price Index (CPI) in March, according to the Central Bureau of Statistics. The first area was fuel and motor oil, which rose 3.6%, the second was recreation and leisure in Israel and abroad, which rose 2.7%, and the third was apartment services, which rose 0.5%.

It is possible to see in this analysis, which is apparently technical, the story of what had been occurring in the Israeli economy for a sustained period before the social protests. Middle-class Israelis, that is to say those with salaries between the third and the eighth decile, are confronted day after day by price rises, and their expenditure is climbing. One minute gasoline, gas and electricity prices rise, and the next minute hotels and guest houses are pushing up their prices for Passover.

From the macroeconomic point of view, you just have to look at the monthly figures for the past year to see how the price-rise process can be explained. A simple examination, without using any special statistical tools, hints that the answer is in the most straightforward economics.

It is not demand and supply at play here, at least not since last summer. Where there is protest price rises are moderate. Where there are no social protests, boycotts or demonstrations, then price rises are relatively swifter and stronger.

Middle-class protesters demonstrated against and boycotted cheese products, and prices fell 13.5% over the past year. Over the same period the price of butter rose 17.6% and the price of black coffee rose 12.6% – maybe because nobody protested. That can also explain the 10.8% rise in the price of children’s pants and the 10.6% rise in the price of building blocks.

For the average Israeli the day can be divided into two halves. During the day they watch prices rise faster than their income. This is the half of the story of the average Israeli, which is reflected in the CPI.

At night, the average Israeli talks with his wife about the long term and his chances and those of his children to buy an apartment and raise a family in overcrowded conditions. The statistics bureau’s figures tell an Israeli what he already feels: that home prices are rising 3% per year, while ongoing expenses leave less money to repay a mortgage. It is worth remembering the simple message stemming from these dry CPI figures.

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