The unexpected 19.4 percent hike in the consumer price index in April was conceded by government officials today to be a severe setback to economic recovery. But it may have been the shock treatment needed to force the government to take drastic and politically unappetizing measures to correct the nation’s severe economic woes.
As late as last night, officials were predicting that the April price index, released this morning, would not exceed 12 percent. The actual figure, nearly eight percentage points higher, means that inflation is now running at an annual rate of 320 percent. This is less than last year but much higher than the national unity government had hoped for at this stage of its economic "package deal" program.
The 19.4 percent figure also means that every job-holder will receive a 15 percent cost-of-living increment with his or her May salary, payable June 1. But many employers maintained today that it will be well nigh impossible to meet the wage bill. A spokesman for the Manufacturers Association claimed that the heaviest burden of the wage-price "package deal" seems to fall on the employer.
CRITICISM BY HISTADRUT LEADER
Yisrael Kessar, Secretary General of Histadrut, vowed that the trade union federation would "fight for full compensation" for every employed person. Kessar, one of the growing number of critics of the government’s economic policies, said there was no need for the Cabinet to have waited for the outcome of Monday’s Histadrut elections before initiating strong economic reforms.
Kessar said there was in fact no guiding economic policy in the government. Coalition Knesset members admit that the April figures indicated the "failure" of the second package deal the government, labor and management agreed to after the first expired last January. Both were aimed at holding down inflation by limiting or freezing wages and prices. But exceptions were made and the urgent need for the government to reduce or abandon its subsidies for basic goods resulted in an upward pressure on prices.
The 45 percent leap in the cost of wearing apparel and shoes was seen as the main culprit in the April price index. The cost of housing, including purchase and maintenance, went up by 25 percent last month.
STRONG MEASURES INDICATED
Reacting to this, Likud ministers convened in Deputy Premier Yitzhak Shamir’s office today and Labor Party Cabinet members are to meet with Premier Shimon Peres tonight. Minister for Economic Planning, Gad Yaacobi, a Laborite, indicated that strong measures soon will be taken.
The media had predicted this several days before the Histadrut elections in which Labor increased its majority substantially over Likud. According to the press, with the elections out of the way, tough measures would be feasible.
The country’s leading economists have been warning for months that calamity will descend unless the government carries out the budget cuts it decided on months ago but has not yet enforced. What the government fears most is large scale unemployment arising from those cuts.
Nevertheless, the media forecasts drastic measures to soak up purchasing power that fuels inflation. A doubling of the new $150 per capita travel tax is expected along with higher fuel prices, a shorter work week for civil servants, with commensurately lowered pay, strict import controls and high tariffs on those imports that are permitted.
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