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Austerity Only Encourages Hoarding : Public Panic Compounds Israeli Inflation Woes

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Times Staff Writer

The woman sped through the grocery store aisles, pushing two carts in front of her, one overflowing with packages of frozen beef, the other brimming with canned goods.

She appeared to be in a race, and in a sense she was; she was engaged in a desperate effort to stay ahead of one of the world’s worst inflation rates.

The shopper, Rita Kransky of Jerusalem’s middle-class Bet Ha Karem neighborhood, was reacting to a government announcement this week that April’s cost of living had increased 19.4%. Projected on a yearly basis, that would give Israel an inflation rate of nearly 740%, second only to Argentina’s.

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Both the monthly inflation increase, which was more than 7 percentage points above the March figure, and the public’s panicky reaction dampened the government’s hopes of bringing the country’s cost of living under control without causing more than minor inconvenience to the people.

Optimistic Predictions

Finance Minister Yitzak Modai and Economic Planning Minister Gad Yaacobi had predicted that, with the help of modest austerity measures, the inflation rate would not exceed 11% in April and would drop steadily into single figures in the months ahead.

The failure of both the policies and the predictions sent Kransky and thousands of other consumers into the stores to buy as much as possible before things get even worse. Meanwhile, government leaders called closed-door meetings to find a solution.

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Kransky said she intended to buy enough beef to last a year and to store it in her freezer. Another shopper at the Hypershuk supermarket in Ashkelon told a reporter, “The rich buy dollars; I buy food.”

Yosef Zuia, the store’s manager, said: “People are buying everything. In the first four hours (after opening Friday), we sold 25 tons of meat. The normal sale is four or five tons a day.”

Devaluation Rumors

Shoppers also were reacting to rumors of a major devaluation of Israel’s already weak currency, the shekel.

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Stores selling appliances, traditional best-sellers during times of hyperinflation and threatened devaluations, reported that sales had tripled Thursday and Friday.

And while the shoppers in Zuia’s store were buying food instead of dollars, many people were rushing to accumulate as much U.S. currency as they could find, putting even more downward pressure on the shekel and draining the nation’s already depleted holdings of foreign currency.

Both legal and black market money dealers said their volume was double that of a normal business day.

After a similar round of inflation last November, the government, under U.S. pressure, froze wages and prices for three months in an effort to stabilize the economy. As a result, the December inflation rate fell to 3.5% while January’s was 5.3%.

Austerity Program Eased

But political divisions within the government, a coalition of the country’s two major political parties and some smaller groups, forced some easing of the austerity program.

Since the announcement Wednesday of the April inflation figures, the Cabinet committee on the economy has been meeting to find politically acceptable programs that can be placed before the full Cabinet at its meeting Sunday.

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Government officials said that while old political and ideological divisions were still sparking bitter differences in the ministerial meetings, there was an increasing awareness that Israel has run out of options other than moves to severely cut the country’s standard of living.

These sources, who asked not to be named, predicted that the Cabinet might order the following steps Sunday: A cut of $500 million in the $22-billion budget; tax increases and perhaps new taxes, including a $13 head tax on all schoolchildren; a reduction in government contributions to a wide range of social and welfare benefits and a tripling of the $150 tax imposed on all Israelis traveling abroad.

All told, the new taxes and other measures are expected to raise $500 million for the government as well as cut back the dizzying cycle of price increases and wage jumps.

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