Last week, economic events did not fall off the agenda, made headlines and dominated the discourse in Israel.
In a special interview with Israel Today, Prof. Zvi Eckstein, dean of the Tiomkin School of Economics and head of the Aharon Institute for Economic Policy at Reichman University, addresses the burning issues.
Inflation has already reached an annual rate of more than 4%. How dramatic, in your opinion, is the figure published in Israel?
"The big event of last week is the US Bank raising interest rates and the dramatic change in forecasts for the US economy that the commission released, not yesterday's inflation. The Fed expects a very sharp decline in growth, from 2.8% to 1.7% this year, and some decline next year.
"The US interest rate is expected to reach 2.5% as early as July, and in fact, towards the end of the year, the interest rate is sure to be more than 3% - much higher than we expected two months ago. "A very strong back to all the central banks, who will adopt a very aggressive policy in lowering the inflation we see today."
also in Israel?
"In Israel, inflation is 4%, 1% higher than the upper limit of the Bank of Israel, and therefore the American increase and the expectations for further increases in the United States certainly give room for increase to the Bank of Israel.
Therefore, it is likely that the Bank of Israel will adopt a austerity policy to lower inflation.
In my opinion, it will not be dramatic, but slower, also because inflation in Israel is lower and inflation expectations are lower.
"In the U.S. one of the key things is that there has been a slight increase in inflation expectations, and now these Fed decisions will move inflation expectations toward their target center, and that in itself has stabilized the system."
US on the road to recession?
"One of the big debates about uncertainty in this process is whether there will be a US recession or a moderation.
The difference is that a recession is usually at least two quarters of negative growth.
The appointment already exists.
The chairman of the Fed, Powell, is trying to convey that the policy that will be adopted will not cause a significant recession. It may cause a significant moderation - it is already in the forecasts.
"The aim is to adopt an aggressive policy that will cause inflation to moderate significantly, but will not cause the economy to enter long-term, stagnation unemployment. Dramatically, but will try to moderate their prices according to market expectations.
"There are those who expect that we are already entering a deep recession. I will say that at the moment, from the data I know - the ones that the central banks publish - they do not signal a deep recession, they do signal a moderation. I am talking about both the world economy and Israel. ".
"Both the global economy and the Israeli economy are undergoing a process of rapid exit from a severe crisis, the great feature of which is first and foremost the huge inflows of governments and central banks. Heavy on energy and food prices, and also on reducing the amounts of oil and food and wheat in the world.
"The second phenomenon is the very aggressive conduct of the Chinese, of zero contagion, closures when there is a very low number of contagious - it reduces the Chinese economic activity. This makes it very difficult for raw materials and products to flow in the markets. "In such dimensions. Therefore, there is a fairly significant uncertainty about how the economies will react. This fact also creates large differences in the various forecasts, some predict a crisis and some a major crisis."
I understand that you are optimistic about the Israeli economy.
"There are currently no significant signs of a recession in Israel. There will be a moderation, interest rates will rise, raising interest rates will reduce demand in the economy."
High-tech is weakening.
"In high-tech, there is a decline in the flow of money to high-tech in the world. Stock markets have fallen significantly since the beginning of the year by more than 20%. The stock markets are also reacting with some uncertainty, seeing volatility, High-tech to this day continues to show very high strength, there were companies whose prices deviated from so-called prices based on income, expenses and growth expectations that were usually. Very strong in Israel. "
Should the government do something to moderate the current wave of price increases? Do you think we should lower the excise tax on fuel?
"No. Inflation problems in the hands of the Bank of Israel, which knows by monetary policy to moderate demand and lower inflation. There is another problem in Israel and that is the cost of living, where the government has a lot to do. For example, the housing crisis: the government does not create conditions The construction is in line with the increase in households, it has not been doing it for 15 years, and the damage is gaining momentum.
"We are in a very difficult situation, so housing prices today are about 30% above where they should have been realistic. It is costly to live hard, and the government is not doing what it should be doing. In other areas, like fuel, the government should not intervene. Prices "Fuel is skyrocketing all over the world due to a shortage of fuel. The government has nothing to do, our level of taxation is high for various reasons, including to finance economic activity."
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