Strong shekel should make Tel Aviv cheaper

Tel Aviv Rabin Square Photo: Eyal Izhar

"The Economist" survey did not include housing prices, just services and products, many of which should not be more expensive if the shekel is strong.

The price of the average apartment in Tel Aviv is $1.1 million (NIS 3.433 million) - yes you read that correctly - as of the end of the third quarter of 2021, according to Israel's Central Bureau of Statistics. The first Hebrew city has now been crowned the world's most expensive city by the prestigious UK weekly "The Economist."

Some time over the past 18 months, the price of a typical three-3.5 room Tel Aviv apartment exceeded the symbolic threshold of $1 million. It happened for two unrelated reasons that pushed prices in the same upward trajectory: the rise in housing prices in Israel in general and in Tel Aviv in particular (Tel Aviv housing prices are double the national average); and the strengthening of the shekel against the US dollar.

Are the rise in prices and the strong shekel the entire story? Can we assume that one follows from the other? The answer to both questions is a resounding no. The strengthening of the shekel is a factor that should in normal times lead to a fall in prices, or at least a fall in the prices of goods and services that are imported to Israel. At least one third of the Consumer Price Index (CPI) is based on goods and services of which the prices should fall when the lsraeli currency strengthens.

The comparison between the world's major cities published this morning by the Economist Intelligence Unit (EIU) is compiled mainly for the benefit of multinational firms that employ expat workers around the world and want to know how much it will cost them in the different locations. So "The Economist," somewhat ironically is less interested in the prices of apartments and more concerned about the prices of products in the supermarkets - that is to say the very products and services that ought to be falling in price.

But where are the lower prices? Only a few weeks ago the owners of Israel's retail chains were threatening the country's consumers with a "tsunami of price rises." While it is true that in recent days we have heard more soothing comments from importers like Diplomat and the fashion chains, the prices on the shelves have not gone down and have even risen. Somewhere along the supply chain, somebody has kept more money in their pocket.

The explanation, and it is tough to judge the seriousness of this, is that the rise in prices is a result of supply chain disruptions. The prices of energy, raw materials and shipping have soared in 2021 following the end of Covid lockdowns and the global economic recovery. These problems are supposed to be solved over the coming year but while they still plague us, importers have an excuse that is hard to argue against.

It is uncertain whether the importer is profiting and the Israeli consumer certainly isn't but the clear losers from the insufferable cost of living in Tel Aviv are those who receive their salary in dollars and are forced to pay at the grocery store in shekels. The international corporations who employ between 60,000 and 80,000 people in Israel (according to the estimates of Start-Up Nation Central) are for the time being remaining silent and remain prepared to pay Israeli engineers huge salaries. Relocation to Tel Aviv was never so expensive but apparently it is still lucrative.

Published by Globes, Israel business news - en.globes.co.il - on December 1, 2021.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2021.

Tel Aviv Rabin Square Photo: Eyal Izhar
Tel Aviv Rabin Square Photo: Eyal Izhar
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018