Inflation Dealt Major Blow by Tough Economic Austerity Program

The government’s tough economic austerity program has dealt a major blow to inflation, preliminary figures for August released today indicated. But civil service employes seem to be the first casualties of drastic measures taken to reduce government expenditures in the war against inflation, according to a confidential report published in Haaretz.

Figures for the first two weeks of August showed the cost-of-living index up only 3.5 to 4 percent above the July average, compared to a monthly inflation rate of 20 percent-plus before the government’s program was announced July 1. The price index for the full month of August will be released September 15. Economic experts expect it will reflect the trend of the first two weeks.

The experts credited the government’s measures for the improvement. They said August inflation would have been even lower but for an unexpected upsurge in the prices of fruit and vegetables. This was attributed to a between-the-seasons shortage which tripled or quadrupled the prices of such popular items as tomatoes and cucumbers.

The good news on the inflation front greeted Finance Minister Yitzhak Modai on his return from Washington yesterday. He predicted an August inflation rate of four percent which, he said, was what the government was aiming for. He warned however that even that achievement is not good enough. Inflation will have to be curbed even more before economic recovery is firmly on track, Modai said.

EROSION IN REAL VALUE OF CIVIL SERVICE WAGES

Meanwhile, a government study not for public release was obtained by Haaretz and published today. It showed an erosion of 40 percent in the real value of civil service wages over the last seven months. According to the study, the July austerity package had devastating effects on the take-home pay of civil servants, more than the economic planners themselves had intended.

The study found that many workers in the public sector are not yet fully aware of their losses because their July and August paychecks did not reflect them. July and August pay included one-time allowances for vacations and clothing. The August paychecks, moreover, included a one-time 12 percent cost-of-living rise compensation negotiated with Histadrut. There will be no such compensation in the September paychecks.

September salaries instead will reflect the full weight of the government’s cutbacks. These include limited wage reductions and a virtual freeze on paid expenses, such as car maintenance costs which continue to rise. They are an important part of the civil service workers’ take-home pay, especially for middle and upper level employes.