price rises prompt strike threat
16 July, 2002
Unrest has led to Israel's first recession since
Israeli inflation rose sharply in June, threatening to punch through
the government's inflation target for the year.
The country's main trade union federation, Histadrut, demanded
that the government raise pay or face a general strike.
But Israeli Finance Minister Silvan Shalom, and many analysts,
said the worst price rises could well be over as they were triggered
by a soaring US dollar in the spring.
The dollar is now spiralling downwards under the shock of US corporate
scandals and profits worries.
Out of control?
Prices rose by 1.3% in June, bringing the total rise from the start
of the year to 6.6% - more than double the government's target of
2-3% for this year, official figures showed.
Israelis have experienced double digit prices rises in rent, fuel,
foreign travel and electricity during the first half of this year,
although shoes, clothing and vegetables fell slightly in price.
Prices of imported electrical goods, in particular, rose because
importers' stock ran low while the dollar was high, analysts said.
The trade unions would be pushing for pay deals of at least 4%
to take the edge off inflation, said Histadrut president Amir Peretz.
The government and central bank "have turned the workers into
guinea pigs", he said, criticising budget cuts and interest
For his part, the finance minister said: "I think the efforts
we have made to stabilise the economy will have their effect."
Inflation would stop rising and may even before to fall "which
will restore sanity to the Israeli economy", said Mr Shalom.
Economists also said price rises would start to stabilise in July.
"It's a delayed reaction to the shekel's depreciation,"
said Bank Hapoalim economist Doron Weissbrod.
"Shekel inflation won't go down, but it won't continue going
up," he said.
Analysts now expect inflation of about 9% in 2002.
The dollar on Tuesday morning struck its weakest level against
the shekel since 25 March, at 4.67 shekels, down 1.2% from Friday.
From boom to bust
Nonetheless, the Israeli economy faces severe problems.
Palestinian-Israeli fighting has caused economic instability across
Until the end of 2000, Israel's economy was thriving, with its
hi-tech sector helping to drive growth to more than 6%.
Inflation stayed within bounds, and unemployment was relatively
That all changed in 2001, as escalating tensions between Israel
and the Palestinians, and the global slowdown, combined to eat into
The economy shrank last year, for the first time since 1953, and
the budget deficit spiralled out of control.
This year, the deficit could reach 5-6% of gross domestic product.