Israeli consumers besieged by wave of price rises

Price rises Design: Tali Bogdanski

Municipal property taxes, water rates, and dairy and bread prices are all set to rise.

The Ministry of the Interior yesterday announced the steepest rise in the municipal property taxes (arnona) in the past five years - a 2.58% increase, effective as of the beginning of next year, following a 0.32% rise at the beginning of this year. Past experience shows that higher municipal property tax rates are liable to cause a series of price hikes in products and services affected by municipal property taxes, such as businesses, factories, and rent.

Water rates are also rising sharply. Rates for private home consumption are set to rise by 1.2% on July 1, after going up 4.12% in January. Water rates are affected primarily by the large investments planned in the water sector in the coming year and the large increase in consumption of desalinated water, which is relatively expensive.

The electricity rate for home consumers rose 3% in January as a result of a series of factors, including a higher price for natural gas from the Tamar reservoir and subsidies for electricity production from renewable energy sources. No further increase is expected before January 2020.

Economists from the Organization for Economic Cooperation and Development (OECD) believe that the current inflation rate in Israel justifies another interest rate hike by the Bank of Israel. In its revised forecasts for Israel published yesterday, the OECD said that the Bank of Israel raised the interest rate in November, but that the fact that inflation has returned to within the Bank of Israel's target range, the low unemployment rate, and the relatively high growth rate justified progress towards restoration of a "normal" interest rate.

On the other hand, the 6% appreciation of the shekel this year is cooling enthusiasm for an interest rate hike, and is deterring the Bank of Israel Monetary Committee from raising the interest rate, because it is liable to deal a severe blow to exporters, who already face stiff competition in global markets. The stronger shekel is also a restraining factor on price increases, because it lowers the cost of goods and services imported into Israel.

Dairy prices also stand to rise soon. Six weeks ago, in response to a petition by Tnuva and Tara, the Supreme Court ruled that the prices of dairy products with controlled prices would go up by 3.4%, and ordered Minister of Finance Moshe Kahlon to sign the price increase. At the same time, the minister of finance has refrained from doing this, even though Tnuva is arguing that he is committing contempt of court. As first reported in "Globes," the Angel and Berman bakeries petitioned the Supreme Court for a 5% increase in the price of bread with controlled prices because of a rise in input prices. The petition was directed against the appeals committee responsible for hearing appeals of decisions by the government prices committee. In their petition, the bakeries are seeking a second increase in the prices of price-controlled bread, following a 1% rise a year ago.

Published by Globes, Israel business news - en.globes.co.il - on May 22, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Price rises Design: Tali Bogdanski
Price rises Design: Tali Bogdanski
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