Inflation is a hot topic these days, with economic analysts predicting that the rising price of goods may bury the global economy in a recession.
In the United States, where inflation hit 9.1 percent last month, consumers are irate over the rising price of fuel, which shot up 50% in just a year.
In Great Britain, food prices are up £454 annually since 2021, with the price of ice cream alone up 14% over the last four weeks.
After years of relatively low inflation, consumers around the world are panicking over their grocery and fuel bills, and wondering when the rise in prices will end.
In Israel, inflation is at its highest rate since 2008, but still stands at just 4.4%. According to the Bank of Israel, the lower rate compared to other countries is a result of long-term, fixed-price contracts with the country’s natural gas suppliers. For that reason, the inflation gap between Israel and the rest of the world will likely widen in the months to come, as fuel prices continue to rise globally.
But that caveat doesn’t make the average Israeli consumer feel any better, especially when the government announced last week that the price of subsidized bread would go up 36%. True, that decree has been delayed for at least two weeks, but if the government goes through with its plans, that will mean an average family buying two loaves of NIS 7.90 ($2.29) bread per week will spend NIS 23 ($6.67) more each month on bread alone, after the price hike.
Keep in mind, however, that while the focus has been on the price of staple goods like bread, other increases will be more significant.
Ten days ago, the Electricity Authority announced it would increase prices by 10% starting on August 1. That’s in addition to a 5.7% rise in January. For a family of six with an NIS 1,000 ($290) electricity bill every two months, that’s an increase of NIS 150 ($43.50).
Likewise, the price of gasoline is now 8.08 NIS per liter ($2.34), up from NIS 7.15 ($2.07) in April. If a family has a car with a 50-liter tank and fills up twice a month, that bump in prices translates into NIS 93 ($26.98) per month and NIS 1,116 ($323.70) per year. Finance Minister Avigdor Liberman recently announced his ministry would lower the tax on gas by NIS 1 ($0.29) on August 1, but even with the cut, prices for gas in Israel will remain among the highest in the world. (Remember how little gas cost during the COVID lockdowns, but we had nowhere to go?)
Other price increases are also significant, including eggs (6.5%) and milk products (4.9%). On trips to the supermarket, it feels as though other prices are rising as well, except perhaps vegetables.
So what does this require from us?
The savvy shopper should stick to a budget and know how to make adjustments, especially if your income has not increased. Cover the basics first. Then, follow the news closely to know where prices are rising on other items.
Here are a few tips to weather the storm until the global economy rights itself:
- Check your water bill. The water company gives each household a certain quota based on area averages and the number of people per household. Make sure your bill reflects the correct number of people at home so that you aren’t paying more than necessary.
- Study your savings rates and investments. Try to make sure they are at least keeping up with inflation. In general, it’s a good idea to invest your money rather than earn a scant .02% in bank interest.
- Tighten up. Think about where you can cut back on wasteful spending and food.
- Take a look at your mortgage. A home loan linked to the inflation rate will cost you more now than the price rises in bread and eggs, so make sure your largest loans are not inflation-linked.
- Work on your professional skills. Warren Buffett provided this tip and I couldn’t agree more. While the cost of living is increasing, improve upon your professional skills to become more valuable to your employer.
- Offset the rising price of gas. Consider car pools, ride-sharing, and public transportation. Electric cars can be a money saver too, but they only pay off in the long term and there is a waiting list in Israel currently.
The bottom line is that inflation is a reality we were fortunate to avoid for the last few years. Now that it’s back, take proactive steps to cut costs, take a deep breath, and learn to live with this new global reality.