The threatening inflation rate is merely a collection of manipulated data.
If so, where is the real danger? (Photo: ShutterStock)
Those who were stressed yesterday when they heard that inflation in Israel broke a 20-year record can relax.
This statistic may raise the pulse, but is not really surprising.
During the years when we were told there was no inflation at all, it was there, bubbling under the surface, just waiting for the moment when it could burst out and let off steam.
Economist Dr. Yishai Ashlag, author of the book THE NOISE FACTOR
, says that in the management world it is known that what is known as the "power of the index", which is a combination of other indices, is the result of playing with numbers - and so it was with inflation, a collection of manipulated data.
"If you take the housing index, plus the vegetable index, plus the construction inputs index, and mix them up, it's easy to play with them. If you look at what happened in the US, where health care, housing and education expenses rose on average close to 10% per year, even though supposedly inflation was zero .
The balance was made using the products that did not become more expensive, only this did not reflect the real situation.
After the epidemic, when everything became more expensive at once, inflation was exposed in full force."
About the December 2022 index
- https://finance.walla.co.il/item/3551847
The governor of the Bank of Israel, Prof. Amir Yaron - continues in the footsteps of governors who failed to understand their role in reducing housing prices (Photo: Yehtz)
It is customary to say, "It is darkest before the dawn" so there is no need to stress.
We are now in the darkness of inflation and very soon the sun's rays will come out and we will start to see it decrease, therefore it is not our real headache.
The electricity, fuel, property tax and water prices are not the problem either, but the way in which they are expressed.
The most important and disturbing data in the publication of the December index of the Central Bureau of Statistics, are the housing data.
Important - because housing prices are showing signs of slowing down and will drop slightly, which gives rise to cautious hope for the future.
Disturbing, because a three percent increase to the interest rate did what the plans of the Ministry of Housing and Finance for the past 14 years, starting with a price for the resident (which was the closest to success in terms of the effect on prices) to a target price and the north, failed to do.
This means that the central bank and the governors who headed it failed.
We will explain: the governors in Israel have limited control over the interest rate, because it must be coordinated with the interest rate in the US. But no one prevented the governor from raising the interest rate on mortgages, which would have prevented the crazy increase in housing prices in the last decade and with it the level of inflation. As we said - Housing is the main generator of inflation and the one that increases the cost of living.
"Now we are seeing an important change in the inflation environment.
Interest and nominal wages are rising," explains Dr. Ashlag, "and housing prices will become affordable. That is to say, it is expected that housing prices will remain constant in the coming years, and may even decrease, and thanks to the interest we will receive more money for our savings and our wages in shekels will rise, so that we will need less Salaries to buy an apartment."
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Minister of Housing, Yitzhak Goldknopf.
Does he see, let alone understand, the public interest - or only the sectors? (Photo: Reuven Castro)
The narrow perspective of the Minister of Housing
So much for the good news.
But here begins the really big problem.
Contrary to what we are used to thinking, the most important ministry for handling inflation and the cost of living is not the Ministry of Finance, but the Ministry of Housing.
The Minister of Finance can implement a plan to break up the monopolies in the food industry and open up imports, but these changes will only affect them years later and to a relatively limited extent.
On the other hand, with precise and vigorous action, the Minister of Housing can influence him in a dramatic way that will encourage an overall drop in prices in all industries.
Alternatively, it may encourage a dangerous situation of stagnation, in which contractors will stop building, because in a world where the interest rate is as high as 5% it is not worthwhile, and buyers will sit on the fence - because you can continue to rent an apartment until the picture clears up (even though the rent has also risen sharply).
A situation similar to a poker table where everyone declares "pass".
Dr. Ashlag sharpens and warns that the state's income from taxes in 2025 depends on the decisions of the Minister of Housing today. In other words - the increase in interest rates shakes the housing market and causes it to behave like an airplane that loses altitude and needs a skilled pilot to hold the rudder and guide it to the runway safely.
According to the statements of the Minister of Housing , Yitzhak Goldknopf, before taking office, "there is no housing crisis" and "a lot of apartments are being bought", it is not certain that he was qualified to fly a plane, what seems more certain, for now, is that the field of vision is limited to the sector from which he comes and does not include the horizon line of the entire public.
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Yitzhak Goldknopf
Minister of Housing
Bank of Israel Governor
interest
Housing prices
