Medical insurance by health funds and private companies and prices of vacations in Israel are items in the basket of basic products and services the prices of which have increased the most in the past 20 years, according to an analysis by Meitav DS Investment House Ltd. chief economist Alex Zabezhinsky.
His report shows that the price of medical insurance by the funds and insurance companies and prices of vacations in Israel have each risen by a cumulative 100% or more. The increase in prices of restaurant meals has outstripped the increase in food prices. The increase in a family's spending for a child in elementary school education, which is supposed to be free, was double the increase in a family's spending for a child in high school education. On the other hand, a noticeable drop in footwear and clothing prices, especially in recent years, contributed to very low inflation figures, despite rises in some items.
Zabezhinsky initiated the probe after being asked to check whether prices of restaurant meals had risen by more than the rise in food prices. He found that this was true (an 87% rise in restaurant prices versus a 66% rise in food prices). He later extended the probe to other sectors and services. The most significant expense for an Israeli family - buying a home - was not checked because prices are not included in the Consumer Price Index; they are published in a separate index.
"This analysis tells an interesting macroeconomic story about the Israeli economy," Zabezhinsky says. "About competition, the private sector versus the government sector, and the effect of the social protest." He cites the example of fresh food prices, which are divided into three main groups: dairy, meat, and fruits and vegetables. "Up until 2011, prices rose together, then went in different directions. Starting in 2011, prices of dairy products really fell. Prices of meat, poultry, and fish more or less stayed the same, while price of fresh fruits and vegetables are constantly rising."
"Globes": What is the reason?
Zabezhinsky: "In general it's a matter of a lack of competition. In absolute terms, today's prices of dairy and meat products in Israel are higher than abroad, while prices of fruits and vegetables are lower than in the countries that import these items, such as Germany, but much higher than in countries like Spain that grow their own fruits and vegetables."
Dairy prices are controlled; there is no competition.
"True, but beyond price controls, there is also a large degree of social and political sensitivity generated by the cottage cheese protest."
There have recently been reports about an imminent wave of food price rises resulting from higher global agricultural commodity prices.
"The agricultural commodities index is at an all-time low. Furthermore, prices of wheat, soy, sugar, and corn have dropped precipitously in recent years. Where have we seen decreases in these prices in Israel? The consumer has not benefited from them. At best, prices have not risen. As soon as there is some beginning of an increase, however, they immediately try to roll it over on to the consumer. This shows how non-competitive this market is."
Bigger price increases for public medicine than private medicine
Another surprising finding emerges from an analysis of price trends in the health market. Zabezhinsky examined the behavior of medical services prices of the health funds and private health insurance and compared them to prices in private medicine, for example the Assuta private hospital and private dental treatment. "If you look, it turns out that prices of insurance at the health funds and insurance companies went up about 40% more. Even if the rates are still lower in medicine considered public, there is a clear trend towards narrower gaps, and that's interesting. Most people say that visiting a private doctor is more expensive than the health funds' supplementary insurance, but the opposite is true."
Zabezhinsky's findings about vacation prices confirms what the public believes. "You see how non-competitive the local tourism and vacation market is," says Zabezhinsky. "The prices here are going up like crazy. Either there is too much government intervention here that adds excess costs or there isn't enough competition." Another factor not mentioned by Zabezhinsky is the strengthening of the shekel in recent years, which has lowered the cost of overseas travel and vacations.
"This is true, but the shekel began to strengthen around 2003, and indices of vacation prices overseas and in Israel rose by the same rate. The change in the trend first became visible about the time of the open skies policy and when use of the Internet to order vacations increased."
The Internet also affected clothing and footwear.
"Definitely. It is notable that the downward trend in prices in these sectors ground to a halt around 2011, and there it can definitely be stated that the effect of opening the market to competition is visible. This could also happen to fruits and vegetables prices if the market is opened to competition."
Soaring prices in elementary school education
Zabezhinsky has no explanation for another interesting gap revealed by his analysis. The increase in cost for a family of a student in elementary school, 70%, was double the increase in the cost of a student in high school, even though in principle the Free Compulsory Education Law applies to elementary school education. "I admit that I have no explanation for this," Zabezhinsky says. "I expected a steeper price rise in pre-elementary school education, a large proportion of which is private, but there the rate of increase was lower."
What about cars and housing?
"The problem is that the price of cars does not appear separately; it is combined with the price of gasoline and is very affected by fluctuations in that price. Housing prices are not part of the index, but it is known that they rose much more than rents, which in my opinion is the index that reflects the true demand for housing and shows whether the increase in housing prices is excessive."
The public feels that the indices do not reflect the real increases in prices in the economy - that prices are constantly rising, even though the Consumer Price Index itself has not risen in recent years, and has even gone down.
"What surprises me, for example, is that inflation in Israel is far more volatile than in the US and Europe. The figures don't lie. People naturally pay more attention to prices that go up, such as food and vacations, that to things that have become fairly dramatically cheaper, such as clothing and footwear. The Consumer Price Index went up by a cumulative 43% during this period, excluding housing, of course."
Published by Globes [online], Israel business news - www.globes-online.com - on July 3, 2018
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