Inflation in Israel

A short history of inflation in Israel

The Inflation Crisis (1979 to 1985)

Israeli inflation reached several hundred per cent a year by 1984. The causes were a series of large budget deficits, including the cost of the 1973 and 1982 wars, combined with an indexation system that tied wages, savings and the exchange rate to past prices, so that any shock propagated through the economy automatically. Shops had begun quoting prices in dollars because the shekel could not hold a value long enough to be useful.

The Stabilisation Plan (1985)

The plan of 1 July 1985 ended it inside a year, and it is still taught because of how it was assembled. A budget cut, a devaluation, a temporary freeze on prices and an agreement with the trade unions to sever the link between wages and past inflation were introduced together rather than in sequence, each credible only because the others were happening at the same moment. The new shekel was issued that September, worth a thousand of the old. Inflation was still above 20% in early 1987, and reaching the low single figures Israel has generally held since took the rest of that decade and part of the next.

Post-Covid Inflation (2021 to 2023)

In Israel, prices rose fastest in November 2022, at 5.3%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.