Mon. May 20th, 2024

Prices of just about everything are rising in Israel. In the past few days, we have been informed of a 5% rise in the controlled prices of dairy products, while companies like Diplomat, Coca-Cola, and Tnuva have announced price hikes of as much as 25%.

The companies provide a welter of arguments apparently justifying these rises, among them rises in overhead costs such as wages, electricity and arnona (local taxes). Nevertheless, an examination of other factors raises doubts as to the necessity for such measures at this time. Sometimes even the claims of the companies themselves don’t match reality on the ground.

Shipping costs steadily declining

One of the main claims of the food companies and the major importers relates to shipping costs, which represent part of the cost of imported products. Is it justified?

Analysis by Bank Hapoalim chief markets economist Modi Shafrir reveals that shipping costs did rise at the beginning of the Swords of Iron war in October 2023, following the threats by the Houthi rebels in Yemen to Israeli shipping passing through the Bab Al-Mandeb Strait into the Red Sea, but that they fell substantially at the end of last year and in early 2024. In fact, they fell for thirteen straight weeks. Prices are higher now than they were just before the war broke out, but they are the same as at the end of 2022.

Besides shipping costs, some of the movement in prices arises from currency fluctuations. In this respect too, it’s hard to find any justification for price hikes. The stronger the shekel, the greater the purchasing power of the importers. The shekel is weaker than it was at the beginning of 2023, but it has strengthened against the US dollar in comparison with the beginning of the war.

Global commodity prices falling

“Because of strong demand, the companies feel comfortable with raising prices, even if it has no economic justification,” says Meitav Investment House chief economist Alex Zabezhinsky. He examined global factors such as commodity prices and costs of importing food products and raw materials for the food industry to Israel.

“World import prices haven’t changed, and there has been no sharp rise,” he says, although he hedges his comment by pointing out that data for import prices are published with a long delay in Israel, and there are still no data for the first quarter. On a global level, data are available, and no rise has been observed. “It remains to be seen whether Israel has been different because of the war, or whether import prices in Israel continue to behave like those in the US and Europe,” he says.







“Prices of the main agricultural commodities, apart from coffee and cocoa, which have also fallen in price steeply lately, are below their levels at the beginning of the year. Up until the end of 2023 (the last known data) there was no exceptional rise in prices of imported food or of raw materials for the food industry and for agriculture.”

Another claim raised by the companies to justify price rises in higher wages. Wages in general in Israel have risen, and the minimum wage 5.5% rose in April to NIS 5,880 gross monthly. That does weigh on local producers, but examination of the data shows that the food companies have been less affected than have other sectors.

Zabezhinsky says that labor costs in the food industry have risen by less than the average in the economy. “Industrial production statistics show that the monthly cost for a salaried job in the food industry has risen by less in the past two years than in industry in general (9% versus 15%), and there has been no unusual demand for food.”

Zabezhinsky’s observation is based on the latest available data, which are for February. The revised minimum wage may have changed the picture somewhat.

Two factors that Zabezhinsky says do justify price rises are power and arnona. “Power and arnona have risen recently. These rises do not however explain the sharp price hikes, although they do affect importers’ profits.”

Zabezhinsky concludes that the known data do not supply a real reason for the latest price hikes by the largest companies.

“I think that the retailers are taking advantage of an opportunity and raising prices of various imported products,” he says. “It seems that the announcements of price rises recently released are more connected to the ability of the companies to do so than to a need to compensate themselves for growing expenses.”

Published by Globes, Israel business news – en.globes.co.il – on May 6, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.


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