We Need Tough Regulations to Lower Israel's Cost of Living

Sami Peretz
Sami Peretz
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People at a Rami Levy supermarket in Bnei Brak, last year.
Sami Peretz
Sami Peretz

There is never a good time to raise prices, but a wave of price hikes presently catches Israeli consumers in an uncomfortable situation. The Competition Authority, the antitrust body charged with ensuring and advancing free competition, has been weakened, following a 2015 government resolution that bypassed their authority by approving the natural gas deal. The authority’s head, Michal Halperin, resigned recently, with no replacement found so far.

There are very good reasons to immediately appoint a new antitrust regulator to ensure that the wave of escalating prices is not exploited by merchants, manufacturers and importers for unjustifiably raising their prices.

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The point of origin of this discussion is the fact that Israel is a very expensive country. According to an OECD analysis, Israel is more expensive in most categories, including housing, energy, food, restaurants and hotels, health, transportation, leisure and culture.

In some categories, the gaps are huge. The price of dairy products and eggs is 31 percent higher than the OECD average, bread and cereals are 17 percent higher, and housing costs are at least 20 percent higher.

The cost of living in Israel is affected by local conditions, such as the fact that this country is heavily dependent on imports, that it adheres to kashrut requirements and is saddled with heavy bureaucracy. But no less important is the existence of dozens of cartels and monopolies. Thus, vigorous action by an antitrust authority, along with government-led reforms, have a crucial role in reducing the cost of living.

The current wave of rising prices can be attributed to global effects such as the damage inflicted on supply chains in the wake of the coronavirus pandemic, which has greatly delayed the movement of goods, to the increased price of oil and raw materials, and, marginally, to a government decision to tax disposable utensils and sweetened beverages.

But these effects have been exploited by merchants, manufacturers and importers to raise their prices, rolling the responsibility onto the rest of the world, just not on themselves and the hyper-concentrated nature of Israel’s economy.

Rami Levy, the controlling shareholder in the marketing chain bearing his name, is on the air almost every evening these days on TV programs dealing with economics, attributing the responsibility for higher prices to the government, as if the tax on disposable utensils is the crux of the problem. Eyal Ravid, the controlling shareholder of the Victory supermarket chain, is warning of a “tsunami of price hikes.”

Inflation is rearing its head in many countries, and after a few years of miniscule increases and very low indices, in Israel too it will reach the 2.5 percent mark this year. Over the last decade, manufacturers and merchants thought twice before raising their prices, given the heightened public sensitivity that began with the social protest movement in the summer of 2011.

The Bank of Israel estimates that the current inflation is a temporary phenomenon associated with the coronavirus crisis, and that it will be mitigated when global economic activity and supply chains resume more normal operations. This temporariness requires the monitoring of manufacturers and merchants who exploit it to unjustifiably raise prices. To achieve this, an effective Competition Authority is needed, as well as a determined government policy aimed at reducing the cost of living.

There are at least three reasons that require resolute government action that would reduce the cost of living: the price gaps between Israel and OECD countries, to the detriment of Israeli consumers, with Israel being on average 20 percent more expensive; the strong shekel (which was traded this week at 3.13 shekels to the dollar), which should justify the lowering of import costs; and the concentrated structure of Israel’s economy, which harbors dozens of cartels and monopolies. The reform in kashrut standards, included in the so-called Arrangements Law that accompanies every state budget, as well as government plans to increase the supply of apartments along with increasing the tax paid by real estate investors, are a good start.

These are long-term processes requiring a strong antitrust regulator and oversight on manufacturers and marketers who are hitching a ride on the current situation.

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