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The inflation rate was zero in the last two weeks of January and the estimate of about 1.5 percent for the full month would be the smallest rise of the consumer price index in eight years. That and other good economic news just released by the Central Bureau of Statistics has put Finance Minister Yitzhak Modai in a strong position for his upcoming contract negotiations with Histadrut.

He said today that with inflation virtually nonexistent there is no need to abandon the wage/price freeze which he credited for ending the spiral of devaluation and price hikes. Modai urged the trade union federation not to demand wage increases but rather maintain the present situation in which consumer buying power is guaranteed.

The success of the economic austerity program is threatened, however, by the Cabinet’s decision yesterday to increase the defense budget by $37 million. Modai warned that if this trend continues it would undo what has been accomplished so far in setting the economy right.

Israel’s trade deficit shrank by 16.4 percent last month compared to the same month a year ago, an improvement attributed to the combined effects of plunging oil prices, a weaker U.S. dollar, and a rise in Israel’s military exports. Minister of Commerce and Industry Ariel Sharon expressed satisfaction with the latest figures that showed a 16 percent increase of industrial exports.

They totalled $517 million last month, a 2.6 percent increase over January, 1985. Imports amounted to $593 million, 3.5 percent higher than the same month last year but the net deficit was reduced to $176 million. The export of metal and electronic products which are generally of a military nature, was up 26 percent last month. Textile exports rose by 22 percent.

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