Inflation in Israel Historically Had Been Much Worse
June 20, 2022
By Ira SharkanskyIra Sharansky
JERUSALEM — The current news is about inflation and the Israeli government.
Let’s deal with inflation.
The current rate here is a bit over 4 percent a year. In the United States, it’s a bit over 8 percent a year.
Both are considered high and have brought forth lots of commentary and considerable effort by Central Banks to increase interest rates.
But let’s think back to something much higher.
The economy had gone from a 13% inflation rate in 1971 to 111% inflation in 1979. During the early 80’s inflation was hovering at the 400% mark. By 1984 inflation was reaching an annual rate close to 450% and projected to reach over 1000% by the end of the following year.
The impact on civilians was considerable. Bank’s money machines were set to allow an investment of monthly wages for three weeks’ time, with control for inflation. Then a third of what remained from each month’s income was made available each week.
Meanwhile the government worked with the Histadrut, or Labor Federation, in order to freeze wages, and to allow a change in currency. The New Israeli Shekel was born on the ashes of the Israeli Shekel. The US government provided substantial financial aid.
Annual inflation dropped from 374 percent in 1984 to 305 in 1985, 48 percent in 1986, 19 percent in 1987, 5 percent in 1999, and then under 1 percent in 2020.
Unrestrained linkage programs had added to high inflation, and a Labor-Likud unity government brought it under control.
Now our politics is messy, with individual Knesset Members threatening to withdraw their support on the basis of what seems like imaginary inventions. More aid for public transportation, control over the import of honey, an assurance of a substantial majority for the government, 250,000 NIS aid for a Muslim cemetery.
What happened to giving up on the details for the sake of going along? Where is the authority of political parties to keep members in line? Are individuals willing to risk an election? What about continuing limping along in order to avoid Bibi? Polls are showing him as the country’s leading politician. His party and allies might capture a small majority of the Knesset.
With a projected collapse of the Israeli government, questions are being asked about the visit of President Joe Biden. Now it’s scheduled for some time in July. And it’ll come with his visit to Saudi Arabia, and perhaps an expansion of Israel’s relations with Arab governments. But what about the Palestinians? Commentators are speculating about the reopening of a Jerusalem Consulate for the Palestinians. What would that do to the notion of Israeli control over Jerusalem?
We’ve had exchanges of fire with Gaza.
Biden’s control over his government isn’t much greater than Bennett’s control over Israel. Will Biden run in the election of 2024? What about the candidacy of Donald Trump?
The war in Ukraine continues, with its impact on inflation due to that country’s importance in the export of grain, and issues of Europe’s dependence on Russian energy supplies. Ukraine’s government asserts its shortage of ammunition, as well as its commitment to keep fighting. Casualties mount on both sides, as well as the misery of people in cities under attack or somewhere as refugees. There’s more talk of this escalating into a nuclear war, or at least a conventional conflict between Russia and the United States. As well as hunger in poorer countries.
It’s all connected: Tensions in Israel, the war in Ukraine, the prices of food, energy, and everything else. One world? Ideal? Hardly.
Lots of unanswered questions.
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Ira Sharkansky, Ph.D., is professor emeritus of political science at Hebrew University. He may be contacted via ira.sharkansky@sdjewishworld.com
