Israel's Treasury May Scrap Current Approach to Price-controlled Products

The present formula was devised in the 1990s and includes maximum prices on such items as cement and bread.

Finance Ministry officials are considering a move to either adjust the formula for setting government price controls or to scrap it altogether.

The present formula was devised in the 1990s and includes maximum prices on such items as cement and bread.

The Finance Ministry's pricing committee is expected to issue a tender shortly for a consultant to help set policy on government-controlled product pricing.

The move comes one year after the Trajtenberg committee, which was convened to address the cost of living in the wake of last summer's social justice protest, recommended that changes to the current price-control formula be considered. The panel said the present approach provides excessive profits to manufacturers, and that it makes it difficult for competitors - such as in the cement industry, for example - to enter the market.

Following the Trajtenberg recommendations, the cabinet approved a resolution to amend the price-control formula. "It involves an outmoded formula that was set when interest rates and other [economic] data were different than they are now," said a source close to the deliberations. "We will look into whether there is a need for this kind of generic formula at all. It's not certain that we will find it appropriate to continue using it."

The current pricing formula factors in the various components of the cost of production, including energy costs and the price of raw materials. Movement in the consumer price index is also factored in, as are interest rates and the producer's profits. It sets a maximum profit margin for the manufacturer.

When it comes to industrial items, revisions to the maximum selling price are generally set by the Industry, Trade and Labor Ministry. Other product pricing is set jointly by the agriculture and finance ministries.

Those who oppose the present approach to price controls argue that producers favor the current formula when it can be used to raise prices, but that it is rarely used to lower prices when production costs decline.