Israelis Gulp at Inflation, Prohibitive Housing Costs

ISRAELI Prime Minister Yitzhak Rabin may be spending most of his time making peace with his Arab neighbors, but he hasn't forgotten what made him prime minister in the first place: his 1992 election promises that Israelis would be better off under a Labor leader.

So the news that inflation hit 2 percent in April, for an annual rate of 13.5 percent, has him frustrated. Especially since the biggest price hikes came in a sector that everybody cares about - housing.

Housing costs have rocketed by over 10 percent since the start of the year. This is partly because the state-run Israel Lands Authority, which owns almost all the land in the country, is charging a lot for building land and partly because Palestinians, who once worked cheap for construction companies, have been kept out of Israel recently for security reasons.

An average two bedroom apartment in one of Israel's three cities - Tel Aviv, Haifa, or Jerusalem - now costs more than $150,000, and is going up by 25 percent a year. For young couples in a country where the average pre-tax wage is only $14,000, that is prohibitive.

The prospect of double-digit inflation would be unwelcome anywhere, but in Israel, which suffered a terrifying bout of hyper-inflation less than 10 years ago, it is particularly worrying. Government planners had been hoping to keep inflation down to 8 percent this year: That now looks like an impossible dream.