In December 1995, Palestinian statistics on consumer prices, from which inflation rates could be calculated, became available for the first time. After determining the relative weights of goods and services consumed by the Palestinian household based on partial results of the family expenditure and consumption survey that it carried out over the period October-December 1995, the Palestinian Central Bureau of Statistics started compiling CPI data. The first month covered was December 1995. Since then, the PCBS has been issuing data for each month on the 14th day of the following month, measured relative to November 1995, which was taken as a base period. The choice of the base period was meant to be provisional until the completion of the family expenditure survey and the fixing of mean relative weights for the various goods and services, and until PCBS could gather data on a whole year that could then be used as a base year.
The PCBS publishes data on the West Bank (excluding Jerusalem), the Gaza Strip, and East Jerusalem separately and in aggregate. According to these statistics, the WBGS annual average rate of inflation for 1996 was 8.4%. But the rate differed from one region to the other: whereas it reached 6.3% in East Jerusalem, it was 10.7% in the Gaza Strip and about 9.0% in the West Bank (excluding Jerusalem). In comparison, the 1996 average rate of inflation reached 10.6% in Israel (ICBS, 1996) and 3.3% in Jordan (CBJ, 1996).
Although the Palestinian data on inflation means that the purchasing power of the NIS went down in the WBGS during 1996 by about 8.4%, the declining exchange rates of the NIS against the US dollar and the Jordanian dinar during the same period resulted in a much smaller decline in the purchasing power of these two currencies. The JD appreciated against the NIS by 5.7% during 1996 and the US dollars appreciated by 4.9% during the same period. Therefore, the decline in the purchasing power for those whose salaries or savings are in JD was only about 2.7%, where as the decline for those whose salaries or savings are in US dollars was about 3.5%.
The PCBS divides the goods and services covered by the price index statistics into 10 general groups, each further divided into subgroups. Almost half of the rate of inflation in the WBGS can be attributed to the rise in the prices of food products, beverages and tobacco, which have a high relative weight in the basket. Transport, communication, furniture, home appliances and textiles contributed about 35% of the rate of inflation. The total contribution of these four groups amounts to 85.2% of the inflation rate, which means that the rise in prices in these groups was a little greater than average since their cumulative relative weight is 81.5%. It is noted that the group that contributed least to inflation is that of recreational goods and services, which contributed a mere 0.7% of the total inflation, whereas its relative weight was 1.6%. The detailed PCBS data show that March 1996 was the month that witnessed a decline in prices of most groups of goods and services; this is also the month throughout which there was a complete closure.
Closure prohibits Palestinian workers from getting to their workplaces in Israel and settlements and also prohibits the movement of goods between the Palestinian areas and Israel. Closure also leads to a decrease in personal income and to lower external demand for Palestinian goods. Therefore, it can be expected that closure will result in the decline in the prices of locally produced goods, especially agricultural produce, as by its nature it cannot endure long periods of storage or delays in shipping. What follows is that the difference in prices of fruits and vegetables between Israel and the West Bank (excluding East Jerusalem) and the Gaza Strip increases as the number of days of closure increases. As for imported goods, it can be assumed that demand will decline because of the decline in workers’ income, but at the same time closure causes a delay in delivery of such goods to the West Bank and the Gaza Strip and thus leads to reduced supply in the Palestinian market. Therefore, the effect of closure on imported goods cannot be determined.