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Soaring Inflation Playing Havoc with Israel’s Economy

The soaring rate of inflation that has bedeviled Israel’s economy since the Yom Kippur War has slowed precipitously in recent months, a leading economist told the Knesset Finance Committee yesterday. But the rate may rise again and the negative effects of world-wide Inflation on Israel’s economy makes any predictions in this sphere a gamble, according to Dr. Eliezer Shefer, director general of the Bank of Israel.

He attributes the sharp decline in the inflation rate to several causes, only one of which can be considered a direct result of the government’s deflationary economic policies. This is the tightening of credit which has slowed down the economy and is felt mainly in the housing market. Dr. Shefer said.

Other causes were the difficulty of finding customers overseas and reduced consumer spending at home after a buying spree earlier in the year. The government managed to hold down the price of fruit and vegetables before Rosh Hashana–an important element in the cost of living index. But these factors may change as the winter approaches. Some economists believe that some price increases were absorbed initially by middlemen but will eventually be passed on to consumers.

IMPACT ON HOUSING MARKET

Dr. Shefer reported that the price index rose at a record rate of 18 percent during the first quarter of 1974. It slowed down to 2.7 percent during the first two months of the second quarter and in the past three months has been hovering between .3 and 1.4 percent which is a perfectly normal rate for a country that claims the world record in inflation. Dr. Shefer said.

The limitations on credit and freeze on large scale construction has had a noticeable impact on the housing market. There is a large supply of flats, something unknown in previous years, when prices soared by 300 percent and more. While the prices have not gone down yet. they are not going up. Dr. Shefer reported. He said one notices a hitherto unknown phenomenon: the same apartments advertised over a period of weeks at a constant price. Until a few months ago, the prices of apartments changed from hour to hour. Dr. Shefer said. If the present housing situation continues, inflation may finally be beaten, he added.

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