This includes last minute topical news of economic
interest.
The Central Bureau of Statistics said this week that
inflation in 2000 totaled zero. There was absolutely no
inflation. The Consumer Price Index (CPI) fell 0.1 percent
in December. Gross domestic product (GDP) increased by an
impressive 5.9 percent last year.
Low CPI figures are also expected in the coming months; the
CPI may even fall. Assessments are that Governor of the Bank
of Israel David Klein is likely to lower the interest rate
this month by 0.2-0.3 percent, from its current level of 8
percent.
The Central Bureau of Statistics (CBS) attributed December's
results to a 3.7 percent decrease in fruit and vegetable
prices and a 3.5 percent drop in fuel prices.
During the year there were increases in energy prices and
the cost of processed foods and health care. However, an
appreciated shekel, coupled with the Finance Ministry's
August removal of sales taxes on over 600 household goods
and appliances, lowered price levels. Consumer demand also
waned during the more than three months of Palestinian
violence.
According to the CBS, housing costs dropped 2.4 percent, and
fruit and vegetable prices, a key indicator, dropped 5.9
percent during the year. Furniture and office equipment
prices fell by 5.3 percent.
Inflation for 2000 is not the lowest in Israel's history.
Inflation hit a low in 1950, two years after the
establishment of the state, when the CPI fell 6.6 percent,
year to year. In 1966, in the middle of a deep recession,
prices rose only 0.2 percent. The highest rate of inflation,
444.9 percent, was posted in 1984. In 1979-1985, inflation
was a cumulative 1,298 percent.
In accordance with the government inflation targets,
inflation fell to single figures in 1995-2000. The economy
was practically inflation-free in 1999-2000.
The Bank of Israel says an inquiry has to be conducted to
determine why inflation is so low, but that during the next
fiscal year it will be sure to bring up the inflation
rate.
Who would have thought the Bank of Israel would be compelled
to apologize for bringing the inflation rate down too
far?
In recent years the central bank has introduced a policy of
restraint based on maintaining a high credit rate to prevent
rampant inflation, but apparently too strong a dosage was
prescribed. The operation was a success--but the patient
died.
In an interview with Ha'aretz, bank director Dr.
David Klein said that an internal investigation would be
made to determine just what happened. Over the last two
years the Bank of Israel has missed the economy's target
rate of inflation by a lot. The target rate of inflation for
the 1999 fiscal year was 4 percent, while the actual rate of
inflation was 1.3 percent. The target rate for 2000 was
between three and four percent, while the actual rate of
inflation was zero percent. Says Klein, "This will
definitely receive our attention. Missing the mark by such a
wide margin demands that we conduct an internal
investigation. The moment we obtain the results, we will
notify the public. For now, our goal for 2001 is to meet the
target rate of inflation set by the government--2.5 percent-
3.5 percent. The Bank of Israel is required to meet the
target rates set by the government, and the inflation rate
achieved for the year 2000 did not match the target rate.
The question is what caused this to occur. We have a number
of possible explanations that we are looking into."
The Bank of Israel director admits the bank's policy of
restraint exceeded expectations and now the painful success
has to be rectified. "The goal of our policy was not to
bring about one of the lowest rates of inflation in the
world." In closing, he made a statement that no normal
economist would have ever dreamed of hearing from the mouth
of the director of the Bank of Israel: "The inflation rate
for the year 2001 will have to be higher than the rate for
the year 2000!"
