Price-controlled basic bread will return to store shelves Wednesday morning, but its cost has gone up 12.5 percent. At the same time the cabinet voted to end price supervision on such bread as of January 1, 2008.

The price rise reflects increases in world wheat prices. Bakeries in Israel had shut down their production of price-controlled breads after flour mills raised their prices.

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The cabinet, as part of the compromise deal, also agreed to increase National Insurance Institute (NII) allowances as of next week instead of waiting for the next scheduled increase in January 2008. Next week's cost-of-living increase will include the change in the CPI since the start of the year.

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

Bakeries said yesterday that would only resume production of price-controlled bread when they had actually received an Industry and Trade Ministry order permitting the rise in the price of bread. The ministry official who is to sign the order, Zvia Dori, was told to prepare it yesterday by the ministry's director general, but renewed bread production won't start until Tuesday night, the end of the Tisha B'Av fast.

The breads still under price supervision include plain white and dark bread - sliced and unsliced - as well as challah baked for the Sabbath.

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.

An inter-ministerial committee headed by the director general of the Prime Minister's Office, Ra'anan Dinur, will study the removal of price controls on bread. Within 45 days the committee is to formulate changes in the law that will link guaranteed income, old-age pensions and other allowances to the CPI.

In addition, the finance, industry and trade and social affairs ministers will act to change the National Insurance Law to update allowances every January according the the change in the index from November to November.

The ministers will decide whether to apply the increases to child and other allowances or to recommend a different solution. Any decision will be brought before the cabinet.