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Israel Hit by Highest Monthly Inflation Increase in 2 Years

Even the most pessimistic economic experts were surprised by the announcement that the price index soared by 8.7 percent last month, the highest monthly increase in 27 years without a drastic devaluation of the Pound. April’s figures, published yesterday by the Central Bureau of Statistics, showed that housing costs led the upward spiral and, together with higher food prices, accounted for 70 percent of the increase.

Several Cabinet ministers reportedly have appealed to Premier Menachem Begin to intervene personally in economic policy, hitherto solely the province of Finance Minister Simcha Ehrlich. Begin was said to have told them yesterday that he feared galloping inflation would endanger Likud’s prospects in the next elections.

Prices increased by 23.4 percent during the first four months of the year. Inflation is currently running at an annual rate of 88 percent, one of the highest if not the highest in the world. The chief contributor is the price of flats which went up by an average of 25.5 percent in April. The cost of an apartment in the coastal area north of Tel Aviv increased by 35.9 percent. A one-room flat in a good neighborhood in Jerusalem currently sells for 11.1 million, about $40,000. These increase came on top of last year’s rise in housing costs which amounted to 133 percent.

Not unexpectedly, Histadrut Secretary General Yeruham Meshel denounced the government’s economic policies and demanded a new rise in the cost-of-living allowance by July. The wages and savings of Israelis are Linked to the c.o.l. index and periodically adjusted to provide a cushion against inflation. They received a 28 percent c.o.l. allowance in April. Meshel noted that “since Ehrlich became Finance Minister, inflation increased by 140 percent.” He said that “with such a state of affairs, there is no point in a five-year plan. It is the next half year that will be fateful.”

He was referring to Ehrlich’s five-year economic program presented to the Cabinet last Sunday which, the Finance Minister said, would reduce inflation by 30 percent. It is based on drastic curtailment of public consumption, private investments and government spending, although a special budget will be required to meet the costs of Israel’s withdrawal from Sinai over the next three years and the redeployment of its forces in the Negev.

RETRENCHMENT MAY BE ACCEPTABLE

Ehrlich’s plan met with strong opposition from many of his Cabinet colleagues. But the shock of the latest inflation figures may improve the chances for its approval, according to observers here, if only because the ministers now agree that something must be done. With that view prevailing, Cabinet members who balked at the proposed cuts in their ministerial budgets may now be willing to accept retrenchment, the observers said.

Ehrlich declared yesterday that the unexpected rise in the price index left no room for compromise. “Steps that will not be taken now will only increase the spiral of inflation and force even stronger measures at a later date,” he warned. But some Treasury experts said today that the new austerity economic plan was less than the minimum required. As soon as it is approved by the Cabinet, they said, immediate drastic measures will have to be adopted to curb inflation and make sure that it does not increase again in the coming months.

The April price index was the third highest since April, 1952. It was exceeded only in November 1974 when prices rose by 11.6 percent after a major devaluation of the Pound, and in November 1977 when the rise was 11.8 percent following the new economic policies launched by Ehrlich soon after the Likud government took office.

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