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This time nobody can say there was a one-time price hike, and neither can the housing index be blamed, because as far as the April consumer price is concerned, everything went up.

The sharp, surprising 1.5 percent increase shows that we are entering a dangerous period of unemployment and recession on the one hand, and price increases on the other - and that is no good.

Seemingly, inflation and recession contradict each other. But it turns out that the two ailments can strike at the same time, and it's happening to us.

There are a number of reasons for this:

l The dollar linkage: It turns out that despite everything, the link between the dollar going up and prices doing the same can't be broken. In a country in which imports are so important, encompassing all types of products, the correlation remains high. So when the dollar goes up, prices are dragged along with it, because the cost of imports go up, and the public, with memories of hyperinflation, is used to the fact that some prices are still marked in dollars.

l Uncertainty: The public agrees to pay higher prices for products because uncertainty reigns. The public is worried about higher inflation waiting around the corner, believing that if something isn't bought today, it will be more expensive tomorrow.

l The government's actions: Macro-economic data shows that government expenditure has risen sharply, especially in the field of defense. The government (including the Defense Ministry and the army) are bad consumers, and when they have to buy various services, they pay more than any private business person would pay, so the growth in the government's budget puts upward pressure on prices. Furthermore, the government raised the prices of commodities under its supervision such as fuel, communications, electricity, licenses and various government fees - all of which eventually end up in the CPI.

l What's next? Clearly, David Klein, the governor of the Bank of Israel, will raise interest rates in another two weeks; and this time, we can expect a steep hike - and another millstone `round the neck of the commercial sector, so no economic recovery is expected in the foreseeable future.

Finance Minister Silvan Shalom will now find it even more difficult to pass the 4 percent cut in the National Insurance Institute payments, and the freeze on public sector wages with Amir Peretz waiting in ambush.

On the other hand, the economic package has to be passed quickly because without a NIS 13 billion cut (even if a large part comes in the form of an increase in taxes and the deficit), we're in for even more recession, unemployment and inflation.