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Consumer Price Index Soars

December 18, 1978
See Original Daily Bulletin From This Date

Israelis were shocked over the weekend to learn that the consumer price index soared by an unprecedented 6.2 percent during the month of November, an annual inflation rate of 10.1 percent. The unpleasant news sparked a new chorus of demands for the resignation of Finance Minister Simcha Ehrlich, who is in serious trouble with his Cabinet colleagues over his IL 305 billion draft budget for the fiscal year 1979-1980.

Histadrut Secretary General Yeruham Meshel warned today that the economic leadership of the country is counting financial disaster. He is scheduled to meet with Ehrlich this week to press for the payment of cost-of-living allowances in January, four months ahead of schedule, because of the run-away rise in prices.

The consumer price index rose 14 points last month to stand at 238.6 based on 100 points in 1976. The steepest rise was in the cost of food which went up by 5.9 percent in November. Vegetables skyrocketed by 19.6 percent and the price of tomatoes increased 100 percent in the course of a single month. During the first II months of this year, the cost-of-living index rose by 43.2 percent, nearly a full point higher than the total increase in 1977. If inflation continues at this rate, some economists believe, it may break the 50 percent barrier.


Inflation was the subject of the Cabinet’s regular weekly meeting today. Ehrlich told his fellow ministers that the price rise was but another indication of the urgent need to cut down public spending. The ministers agreed that the inflationary spiral is alarming but none of them seemed ready to accept stringencies in their own budgets and no decisions were reached.

There was no support for Ehrlich’s budget. The Minister of Energy and Infrastructure, Yitzhak Modai, said he opposed it because it preserved the present rate of inflation. He submitted an alternative budget of his own, which he claimed could serve as the basis for a new economic policy.

Absorption Minister David Levy said he opposed the budget because it contained false priorities that neglected social issues. Similarly, Yitzhak Katz, the Minister of Social Betterment, argued that the economically deprived elements of society would continue to be deprived. Education Minister Zevulun Hammer said he would vote against Ehrlich’s budget unless it was changed to improve social conditions and education. Ehrlich retorted that his budget would put a brake on inflation and questioned the present method of calculating the cost-of-living index.

According to Ehrlich, the cost of housing should not be included. Economists, however, say this is “masking the symptoms without treating the causes of inflation.” Since there seems to be an impasse between Ehrlich and the other ministers, most observers believe Premier Menachem Begin will have to step in as an arbitrator if the Cabinet is to agree on a budget to submit to the Knesset next year.

The Cabinet did agree today on two monetary measures aimed at reducing the amount of currency in circulation and limiting foreign currency loans. But Bank of Israel sources said today that these moves alone could not improve the economic situation. They urged the government to initiate a bold new economic policy and, specifically, to reduce its expenditures.

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