The cabinet Sunday approved a proposal to increase the price of basic bread by 12.5 percent, following a crisis that has seen saw bakeries shut down their production lines of bread subject to government price controls.

Under a compromise deal, the cabinet also agreed to increase National Insurance Institute allowances according to the increase in next week's cost-of-living index.

However, it appears likely that the rise in the price of bread will be greater than the rise in the index, and therefore, the expected additions to social welfare allowances will not be enough to offset the bread price hike.

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Bakeries said they Sunday that would only resume production of price-controlled bread when they had received "in their own hands" an Industry Ministry order permitting the rise in the price of bread.

The ministry official who is to sign the order, Zvia Dori, is still in the process of studying legal aspects of the cabinet decision, ministry sources said.

Earlier in the year, bakeries had demanded the government lift all price controls on bread, citing a worldwide increase in the price of grain and prompting a backlash by angered consumer groups.

As no solution could be reached, many bakeries stopped making price-controlled bread, saying they were losing money.