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One year after protests, Israel´s consumers mark partial success in lowering prices (HAŽARETZ NEWS) By Adi Dovrat-Meseritz and Hila Weisberg, Itai Trilnick, Nimrod Bousso 06/03/12) Source: http://www.haaretz.com/business/one-year-after-protests-israel-s-consumers-mark-partial-success-in-lowering-prices.premium-1.434027
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It has been around a year since the protests against the cost of cottage cheese and housing transformed the Israeli consumer´s consciousness, lowered prices at supermarket chains and changed government policy.
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In later months, the cost of living still appeared high, despite progress in the cellular telephone market and the promise of free education from age 3. A closer examination by TheMarker, however, reveals that progress has been made - precisely in the areas where consumers have made prices an issue.
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The cost of dairy products, for example, is lower than in May 2011, and prices have declined over the past year in sectors including food, furniture, education and culture. Meanwhile, increases in gasoline and electricity prices have been curbed due to the government´s concern about a backlash.
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According to the Central Bureau of Statistics, the consumer price index rose 2% in February from a year before, while the average wage climbed 3.7% over the same period. This means the average Israeli´s purchasing power increased slightly over those 12 months. Unemployment, which stood at 6.9% in March, was down slightly from the first quarter last year, when it stood at 7% (as measured using current criteria, which have been revised since last year ).
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No structural change
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Although the protests lowered some prices, most of the change was not structural, said economist Yoram Gabbai, a member of the Trajtenberg committee that was formed to develop policy for reducing the cost of living. For the most part, the drop in prices was not caused by the opening of markets to competition. "If the social protest isn´t accompanied by increased competition, it will melt away," Gabbai said.
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Echoing that sentiment, one of last year´s protest leaders, Itzik Alrov, said price declines will prove lasting if the government makes policy changes, such as the increased competition the Communications Ministry injected into the cellphone industry. Alrov warned, however, that if the new mobile phone operators such as HOT Mobile and Golan Telecom don´t lure enough customers from their veteran rivals, they won´t survive.
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"Consumer power is always critical," he said. "We the consumers must always be on guard."
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When examining prices over the past year, it´s also clear that although gasoline and electricity prices went up, they would have risen much more had it not been for the government´s concerns about the public´s reaction. Gasoline prices, for example, rose slightly, but the excise tax on gasoline was reduced several times over the year due to the intervention of Prime Minister Benjamin Netanyahu. The prime minister made sure the price of full-serve fuel did not exceed NIS 8 per liter, which was viewed as a psychological hurdle.
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Electricity prices, too
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Perhaps the most iconic consumer item of the protest movement was cottage cheese, after a boycott pushed the price of that Israeli favorite below NIS 6 per tub. The effects of this effort have been lasting.
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In May last year, cottage cheese typically sold for NIS 6.99, while a year later it was going for NIS 5.69. Prices of white cheese-spread, diapers and Milky chocolate pudding have also fallen, as supermarket chains are apparently loath to incur the people´s wrath with price increases.
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Yes, electricity prices have risen substantially - 23% - but this was mostly due to disruptions in natural gas supplies from Egypt, which had been the major supplier of gas to the Israel Electric Corporation.
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The protests had an effect on electricity prices, too. Electricity prices were bound to rise due to depleted gas supply from the Tethys Sea site, forcing the IEC to generate electricity by burning more expensive fuels such as diesel and heavy fuel oil. These fuels can be up to five times as expensive as natural gas.
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The price rise was curbed, however, when the state provided loan guarantees that enabled the electric company to spread the increased costs over several years.
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When it comes to the cost of rental housing in Tel Aviv, which got protesters putting up protest tents on Rothschild Boulevard and elsewhere, prices have also continued to climb. The average rental price of a three-room apartment in the city center rose 9% over the past year to between NIS 5,500 and NIS 6,000.
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On that score, the protests may have backfired, because some people who were thinking about buying an apartment held off in the expectation that prices would fall. They continued to rent instead. Also, the government taxed apartments held for investment purposes, in an effort to encourage owners to sell. So this reduced the supply of rental apartments.
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In any event, apartments up for sale have not been getting any more expensive. (© Copyright 2012 Ha´aretz 06/03/12)
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