'Israel' on the brink of economic crisis as inflation surges

By Al Mayadeen English
Source: Israeli media
16 Sep 2024 11:01
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Israeli inflation accelerated more than expected in August, driven by rising costs of fresh produce, housing, and foreign travel.

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Vendors sell vegetables in a market in Haifa, occupied Palestine, on Monday, August 5, 2024. (AP)

"Israel" is approaching one year into its costly war with Gaza. With no end in sight, Tel Aviv is also concerned about a possible escalation in the northern region amid Israeli Prime Minister Benyajmin Netanyhu's constant threats against Lebanon. The economy has contracted, the fiscal deficit has expanded significantly, and Moody’s has downgraded the country's credit rating.

In a related development, Israeli inflation accelerated more than expected in August, driven by rising costs of fresh produce, housing, and foreign travel, according to data from the Central Bureau of Statistics released on Monday.

The annual inflation rate for the past 12 months increased to 3.6%, marking the highest level since October. This is up from 3.2% in July and 2.9% in June, and it remains above the government’s annual target range of 1% to 3% for the second consecutive month.

Monthly, the consumer price index (CPI), which measures the average cost of household goods, rose by 0.9% in August, exceeding analysts' expectations, which ranged from 0.5% to 0.6%.

In August, there were notable price hikes, including a 13.2% rise in the cost of fresh vegetables, with tomato prices soaring by 37.3%. Transportation costs increased by 2.8%, housing prices went up by 0.6%, and culture and entertainment expenses edged higher by 0.5%, as reported by the Statistics Bureau.

The war index is economic as well: Haaretz

Israeli newspaper Haaretz has criticized the economic situation in "Israel", stating that "the longest and most costly war in our history imposes a price on the cost of living and reduces the opportunity to lower interest rates."

However, this does not mean that the Bank of "Israel" will rush to raise interest rates, out of concern that it might stifle economic activity, which is the last thing needed at the moment, according to Haaretz.

Furthermore, the newspaper has dubbed the cost of living index in "Israel" the "War Index," asserting that "the longest and most expensive war in the country’s history exacts a toll not only in security costs and compensation for many victims but also in the cost of living." The index for August, which rose by 0.9%—contrary to early forecasts predicting only a 0.5% increase—is largely attributed to the war and its effects.

The newspaper explained that part of the revenue increase was due to a sharp rise in air travel prices on Israeli airlines. This increase was driven by a significant reduction in flights from foreign airlines to "Israel," resulting in decreased supply and increased demand, particularly in August. Consequently, there was a 22.1% increase in the cost of traveling abroad.

Foreign airline flight cancellations increased significantly

It also noted that "the cancellation of flights by foreign airlines has increased significantly, especially following the killing of Hezbollah leader Fouad Shokor in Beirut and Hamas leader Ismail Haniyeh in Tehran, which heightened tensions and fears of escalation."

According to the newspaper, these concerns have not been fully dissipated, as evidenced by the 1.2% gap between the yields on Israeli government bonds and US government bonds. This indicates that investors are demanding higher returns for investing in Israeli government bonds, as they are considered riskier at this time.

This gap emerged during the war and fluctuated with the level of regional tensions, meaning increased costs for government debt financing needed to cover war expenses.

The current index reflects a series of war-related developments, such as questions about whether international airlines are reducing flights to the region, whether prices are rising, whether the Turkish boycott is affecting tomato imports, whether services are becoming more expensive, and whether apartment prices are soaring. All these factors prevent a reduction in interest rates and result in higher monthly mortgage payments.

The newspaper criticized that none of these issues seemed to concern the government and that they were not considered in the decision-making process regarding the continuation of the war, despite their significant impact on the settler communities.