Economists insist higher inflation won’t strike in Israel

Israeli supermarket Photo: Shutterstock Defotoberg
Israeli supermarket Photo: Shutterstock Defotoberg

As inflation climbs to 7% annually in the US and 5.4% in the UK, “Globes” examines why the Bank of Israel insists it will only be 1.6% here in 2022.

Inflation is running at 7% annually in the US, the highest in 40 years and at 5.4% annually in the UK, the highest in 30 years. In Israel, housing prices are rising at a double-digit percentage rate annually and food prices and electricity rates are on the rise. But the Bank of Israel insists that inflation will only be 1.6% in 2022, after a relatively modest 2.8% in 2021, even though central banks worldwide are back tracking from their original estimate that inflation is a passing phenomenon. So why are Israeli economists so confident that inflation will fade in the coming weeks?

Israeli thinking rests on several pillars: the strengthening shekel; fixed natural gas prices; containing salaries; and the awareness of politicians and regulators to public sensitivity over the cost of living.

The shekel is likely to strengthen even more in the near future. If Israel joins MSCI’s Europe Index, then foreign investors are expected to invest billions of dollars in Israeli shares. On the other hand, many analysts point out over the past year the correlation between the strength of the shekel and the flow of capital into the Israeli tech sector and companies traded on the Nasdaq in the US, but the anticipated series of interest rate rises in the US poses major questions about the continued positive trend in these areas.

Another major factor is the price of energy in Israel, which in contrast to Europe, is maintaining stability, mainly due to the fixed price at which natural gas from the Tamar and Leviathan fields is sold to the domestic market. In this context, it should be pointed out that the US produces the gas and oil that it consumes and despite that annual inflation there is about 7%.

Two other variables with a major impact on inflationary pressures are salaries and the role of regulation. On the first point, Minister of Finance Avigdor Liberman has reason to be satisfied from the agreement with Histadrut chairman Arnon Bar-David to freeze salaries in the public sector for a year as part of an overall economic package deal. Although salaries in the tech sector are rising fast, the effect is not spilling over into other sectors.

The second factor is the major sensitivity in Israel to the cost of living, which is expressed in the public anger aroused in response, for example, to rise in grocery prices. Public pressure pushes the politicians and influences the regulators. Consumers may be sensitive to prices rises at the cash tills and on the shelves but the situation would be far worse were it not for the public’s response. Analysts have clearly that shown that the price rises in goods and products around the world have only partially been passed onto the Israeli consumer, even after the appreciation of the shekel is taken into account, which indicates that the suppliers are absorbing some of the rises. Utility rates would also have risen more, if the politicians had been indifferent to the matter.

The explanations of the economists would seem to be convincing. But there are always the unexpected factors that can alter the picture, while there are those who argue that the Consumer Price Index (CPI), as calculated by the Central Bureau of Statistics in Israel, does not accurately reflect the true picture about the rise in the cost of living.

Published by Globes, Israel business news - en.globes.co.il - on January 20, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Israeli supermarket Photo: Shutterstock Defotoberg
Israeli supermarket Photo: Shutterstock Defotoberg
Unframe founders credit: Yossi Yarom Israeli AI enterprise platform co Unframe raises $50m

Unframe’s turnkey AI solutions enable companies to solve any enterprise AI use case at scale with fully functional, customized AI solutions for businesses in a matter of hours, rather than months.

Combatica credit: Combatica Combatica launches next-gen VR AI training platform

The Israeli company's virtual reality platform includes 50 AI generated scenarios, seven maps and even situations for operating night vision.

Shekel credit: Shutterstock Vladirina 32 Shekel volatility after US tariffs announcement

The shekel is weakening sharply against the euro, which is gaining following the unveiling of Donald Trump's tariffs plan.

Minister of Finance Bezalel Smotrich credit: Noam Moskovitz Knesset Spokesperson Treasury assesses potential damage to Israel's US exports

Israel will be charged a higher tariff on its exports to the US - its biggest export customer - than Turkey and the UAE.

Iranian flag credit: Shutterstock Why inflation haunts Iran

With a month-on-month increase of 3.3% and an annual rate of 37.1%, inflation reflects the struggles of millions of Iranians.

APM merges with lawyers from Doron, Tikotzky Kantor, Gutman credit: Eyal Merilos APM merges with 12 lawyers from Doron, Tikotzky Kantor, Gutman

With the addition of these 12 lawyers, Amit Pollak Matalon & Co. will now have 135 lawyers.

US President Donald Trump credit: Reuters Sipa USA Israel on list as Trump unveils tariffs

Relatively low reciprocal tariffs will be imposed on Israeli goods sold in the US.

Deflated unicorn credit: Shutterstock Big Tech 50 reports more huge falls in startup valuations

Israeli R&D partnership Big Tech 50 reports that an investment of $2 million in Orcam made in 2021, shrank to just $31,000 at the end of 2024.

NextFerm technologies based on yeast credit: NextFerm Food-tech co NextFerm suspends operations

The company, which produces food ingredients in yeast without genetic engineering, cannot pay its debts and is seeking a buyer.

Minister of Finance Bezalel Smotrich credit: Shlomi Yosef OECD sees recovery in growth but high inflation

The OECD Israel Economic Survey 2025 recommends that the Israeli government take several restraining measures, in order to exit the economic storm created by the war.

Dano Ben-Hur credit: Dror Sithakol Statisticians contradict BoI on impact of housing finance deals

The Central Bureau of Statistics insists the impact of 20/80 buy now pay later financing deals on the real estate market and housing prices is minimal.

Governor of the Bank of Israel Amir Yaron  credit: Government Press Office Debt fears top Bank of Israel's concerns

Most unusually, Governor of the Bank of Israel Amir Yaron's press conference last week did not focus on inflation and the impending interest rate decision.

US President Donald Trump  credit: Reuters/Leah Millis Israel moves to avoid Trump's tariffs axe

Minister of Finance Bezalel Smotrich has signed an order canceling all tariffs on imports from the US. The impact will mostly be on agricultural produce.

Forbes Rich List credit: Shutterstock Maslowski Marcin Wiz founders ranked in Forbes 2025 Rich List

There are a few dozen Israelis listed in the 2025 Forbes Real-Time Billionaires List including Wiz founders Assaf Rappaport, Yinon Costica, Roy Reznik and Ami Luttwak.

SatixFy CEO Nir Barkan credit: Ariel Barkan Canada's MDA Space to buy Israeli satcom co SatixFy

MDA Space will pay $269 million for the Israeli company, including taking on a $76 million debt and a 75% premium on SatixFy's closing price on Nasdaq yesterday.

Raising dollars credit: Shutterstock Israeli startups raised over $1b in March

Israeli privately-held tech companies have raised $2.1 billion in the first three months of 2025, according to IVC-LeumiTech, up 24% from the corresponding quarter of 2024.

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018