Remarks by Prof. Michel Strawczynski, Director of the Bank of Israel Research Department, at the Ministry of Immigration and Absorption Business Consultants Conference
- Most of the price increases in the advanced economies are affected by supply chain difficulties and with the increases in oil and energy prices. These factors are expected to be temporary.
- Recent developments and the publication of information that sums up the positions of the Federal Open Market Committee members (dots) have strengthened the assessment that the interest rate in the US will be increased during 2022. This is due to the high inflation that has been measured in the past 12 months, which may become prolonged if new wage agreements are signed between employers and employees that are based on the current price increases.
- In Israel, inflation in the past 12 months (excluding energy, fruits and vegetables) is 2.1 percent, close to the midpoint of the target range. According to a Research Department analysis that takes into account the composition of employees and is based on data until July, the increase in nominal wages moderated at the height of the COVID-19 period, and has recently drawn gradually closer to the precrisis level.
- According to Research Department assessments, the price increases of the past 12 months are expected to continue at a similar pace until early 2022, and then to moderate, provide that the supply chain difficulties moderate and oil prices do not continue to increase.
The Research Department’s staff forecast that was recently published contains the assessment that the economy will grow by 7 percent in 2021 and by 5.5 percent in 2022. The forecast assumes that there won’t be a new variant that will necessitate the lockdown of the economy in the coming year, and that the last industry that will open fully is incoming tourism. This industry is expected to continue operating with moderate activity, in view of the tremendous variance in the handling of COVID-19 infections among the various countries. However, on November 1, the government approved a new plan that will increase incoming tourism, but the process of returning to tourist entries is expected to be gradual, and may gain momentum only toward the summer of 2022. This was Prof. Michel Strawczynski’s assessment at a conference organized by the Ministry of Immigration and Absorption.
“There is a significant worldwide problem today that has to do with difficulties in the supply of raw materials and an increase in energy prices, that may moderate over time as economies return to a more normal state, as existed prior to the COVID-19 crisis. These difficulties are expected to be temporary, and if they do not continue, the price increases currently taking place in the US and Europe will be reined in. Following the publication of the positions of the Federal Open Market Committee members (dots), the assessment in the US is growing that there will be an interest rate increase in 2022, in view of the uncertainty regarding the timing of a solution to these problems, which may influence new wage agreements currently being signed in the US.
“By contrast, in Israel this is taking a less serious form, because inflation over the past 12 months until September (excluding energy, fruits and vegetables) was 2.1 percent, close to the midpoint of the target range. This inflation is expected to continue until the early months of 2022, and is expected to moderate thereafter if the global supply chain problems moderate and oil prices do not continue to increase. Furthermore, according to an analysis by the Research Department of data until July relating to the nominal wage adjusted to the composition of employees during the COVID-19 period, it is clear that at the height of this period (until September 2020), there was a marked moderation in the nominal wage increase, which is gradually closing as the economy reopens.” Strawczynski further noted that, “The development of wages in the economy will be affected in the future by wage agreements being signed in the public sector.”
Looking toward the future, Strawczynski noted that, “In view of the control over morbidity following the third vaccination, restrictions on economic activity were removed gradually, which is reflected in the incoming tourism plan that is being implemented as of today. This plan is expected to gradually increase incoming tourism to Israel, which should be reflected in the summer of 2022, obviously assuming that new variants don’t break out globally or in Israel that would require a change in the government’s decisions regarding the prevention of infection.” Strawczynski emphasized that regarding travel by Israeli tourists abroad, “There is already a marked improvement in activity, in view of the decision on just one day of isolation upon returning from “orange” countries for individuals who have received a third injection.”