The Israeli government today announced a tentative accord with business and labor unions for a three-month wage and price freeze aimed at curbing the country's raging inflation rate, now estimated at about 1,000 percent a year.
The agreement, which was initialed today, was hammered out in two days of almost nonstop bargaining among top officials of the government of Prime Minister Shimon Peres; the Histadrut, Israel's giant trade union federation, and Israel's Manufacturers Association. It is expected to be ratified Saturday night or Sunday by the full Israeli Cabinet and the central committees of the Histadrut and the Manufacturers Association.
Under the terms of the accord, beginning Monday there would be a three-month freeze on prices, basic wages, dividends and profits. Israeli workers would give up one-third of the cost-of-living pay raises they receive during the first two months of the freeze, but would be compensated in part early next year with a three-month reduction in income taxes by 5 percent.
Israeli officials said the agreement also included a written understanding between the government and business calling for a gradual reduction in interest rates to no more than 1 percent above the monthly rise in the consumer price index.
Economics Minister Gad Yaccobi said the goal of the freeze was to reduce price rises to 7 to 9 percent a month, which would still leave the country with an annual inflation rate of between 125 and 181 percent.
In September, the consumer price index in Israel rose by a record 21.4 percent, which, because of the compounding effects of inflation, represented an annual inflation rate of 925 percent. The rise in prices during October is expected to be at least as high. So far in 1984, the lowest monthly rise in the consumer price index was 10.7 percent in March.
Aides to Peres were clearly relieved by the agreement for a wage and price freeze. The prime minister had pledged to produce such an accord by Thursday and faced an erosion of his political credibility had he failed to win the backing of the unions and business.
Uri Savir, Peres' spokesman, stressed the importance of government steps to improve the "psychological environment" in Israel, where triple-digit inflation has become a normal way of life.
"If inflation is cut, it will make it easier for the government to take other drastic steps," he said.
Savir said one such step will be additional cuts in the government budget, although these may be difficult to win from a reluctant Cabinet. In addition, Israel Radio tonight quoted Finance Minister Yitzhak Modai as saying the government planned higher taxes, particularly to curb the import of luxury goods, and a new round of cuts in its subsidies of basic commodities such as food and fuel.
Peres first proposed a wage-price freeze package on Oct. 23.