Oil prices have surged more than 10% in the past month, approaching $100 a barrel of Brent crude last week. At the same time, the shekel continues to show weakness against the dollar, and the combination of these two trends is expected to affect everyone's pocketbook.
According to assessments, after the holidays, another wave of price increases may begin. The public focus, which has focused in recent months on the issue of legal reform, could be a favorable ground for price increases.
According to a senior source in the import industry, "The last time there were increases in fuel prices, freight prices also went up immediately, and our suppliers used this as a reason to raise prices. Our working assumption is that there will be an increase in prices. We are already hearing that there is an increase in prices in the pipeline," the source said, estimating that the price increase will be 10-15%.
Get your wallet ready
The significance of the increase in oil prices is an increase in the price of inputs for industry and services, both in Israel and abroad. The increase in oil prices extends to the prices of sea and air transportation of imported goods, alongside the cost of producing raw materials (such as plastic), and even to the prices of agricultural inputs. According to estimates, every 10% increase in oil prices translates over time into an increase of 0.4% in the inflation rate.
Refueling (illustration), photo: Photo: Joshua Yosef
At the end of August, Diplomat, the largest importer of food and toiletries, announced that it was preparing to raise the prices of its products due to price increases planned by its suppliers abroad, and due to the weakening of the shekel. But oil has also jumped 10% since August, so it's not inconceivable that Diplomat won't be the only company raising prices.
Will the price of fuel go up?
Apart from the prices of imported goods, the price of gasoline could also jump as early as early October, if the Ministry of Finance does not prevent it. For almost a year and a half, the Treasury has been subsidizing gasoline prices by lowering the excise tax, but this month, the cost of subsidizing the "freeze" on the price of gasoline is expected to be heavy because of the jump in the price of oil. At the same time, the budget deficit in the state treasury continues to grow due to a decline in state tax revenues and an increase in government expenditure.
"The increase in oil prices affects inflation all over the world, but in Israel, the combination of the increase in oil prices and the increase in the dollar exchange rate creates a combined increase in prices," Chen Herzog, chief economist of BDO, a consulting firm, told Israel Hayom. "The government tried to deal with the increase in oil prices by continuing to subsidize the excise tax on gasoline, but this is a policy measure with a high budgetary cost and low effectiveness, and it has no effect on most oil consumption in Israel."
"We must remember that gasoline for transportation accounts for only about 30% of the consumption of petroleum products in Israel. The rest of the petroleum products – fuels for industry, heavy transportation, airplanes and ships – become more expensive at the full cost of the world price and are passed on to the consumer."
Economist Chen Herzog, Photo: Nati Hadad
Herzog concludes: "The Ministry of Finance should abandon its policy of increasing fuel subsidies every time global prices rise. This is a deficit policy that ultimately harms consumers, who subsidize the gasoline tax from their tax money, and that increases inequality in the economy."
Will affect every home
Gili Ben-Avraham of Leumi's Economics Department believes that the recent increase in global energy prices is liable to affect most Israeli households: "First in products and services whose sensitivity to energy prices is high and immediate, such as fuel for vehicles and expenses for travel abroad. The price of gasoline in Israel, which is under government supervision, is derived, among other things, from the price of a barrel of oil, so that as early as this October, the price of gasoline in Israel may be revised upward. However, it is possible that the Finance Ministry will decide to prevent such an increase, or at least part of it."
Flights abroad are also on the way up, Photo: Yossi Zeliger
Ben-Avraham adds: "The prices of expenses for travel abroad, which have jumped significantly in the past year, are liable to climb to another level as the increase in energy prices is also felt in the prices of jet fuel, which is a key input in the aviation industry.
"Beyond that, additional products and services are expected to be affected by an increase in energy prices, particularly those that are highly sensitive to transport prices or whose production is energy-intensive. For example, as freight prices rise, it is not inconceivable that the prices of products marketed in food and clothing chains will also be revised upward. This is in order to compensate for the increase in transportation costs of these products from suppliers to warehouses, and from warehouses to branches, and from there to the homes of online buyers. But such an effect is unlikely to be immediate," he says.
Wrong? We'll fix it! If you find a mistake in the article, please share with us