This past weekend marked 100 days since the Israel-Hamas conflict began. While there has been a lot of substantive and essential coverage of the experiences of Israeli Jews and Palestinians, another population group that has found itself at the nexus of the conflict but often forgotten is the Arab Israelis.

Nothing better demonstrates this than the controversy surrounding the decision by Israel’s Jewish Culture Department of the Ministry of Education to withdraw funding from the Megiddo Regional Council’s annual Shavuot event because Arab Israeli broadcast journalist Lucy Aharish would be hosting it. 

Aharish, the first Arab Muslim news presenter on a mainstream Hebrew-language television show, is in an interfaith marriage with Fauda Israeli Jewish actor Tashi Halevi. Most notably, she and her husband saved lives during the October 7th attacks by facilitating a private rescue operation. 

Although Itzik Holevsky, the head of the Megiddo Regional Council, appealed the decision, citing Aharish’s professional and personal experiences that make her qualified to host the event, Itiel Bar Levi, director of the Department for Jewish Culture, rejected it. 

In Levi’s written reasoning to the council, he explained the funding was retracted due to bureaucratic miscommunication and procedural technicalities. But then he further reiterated the following: “We live in a ‘Jewish State’ and as the Wing of Jewish Culture, it makes sense that a woman who represents mixed marriage cannot represent Jewish culture.”

His comments elicited outrage not only from Aharish and the council but from many Israeli citizens. The Ministry of Education has since refused further comment. 

This situation highlights the complexities of identity and acceptance for Arab Israelis, especially as they navigate a post-October 7th Israel. 

Representing 21 percent of Israel’s population, Arab Israelis are situated in a unique position. Not only do they share ethnic and community ties with Palestinians in the West Bank and Gaza (with some even identifying as such) and Arabs across the Middle East more broadly, but they also share national ties with Israeli Jews and other ethnic groups in the state of Israel. 

Arab Israelis are descendents of Palestinian Arabs who remained in Israel when it was founded in the 1948 war in what had been British-ruled Palestine. Hundreds of thousands of their kinsmen fled or were expelled. 

A majority of today’s Arab citizens in Israel are Sunni Muslims, though there are many Christians and Druze as well. Most Israeli cities have either majority Jewish or Arab populations. More than half of Arab Israelis live in the northern parts of the country. 

A December 2023 survey from the Israel Democracy Institute, an independent research group, sought to understand how Arab Israelis have responded to the conflict and see their place in Israeli society more generally. The survey results showcase an interesting mix of trends. 

The biggest finding is that Hamas’ terrorist attacks against Israel and the ensuing conflict have contributed to a rising share of Arab Israelis who now say that they feel a sense of belonging to Israel. More than two-thirds said they feel part of the state of Israel in the survey. That is up from less than half in June 2023 and represents the highest rate since 2004. 

Among Arab Israelis, the Druze community identified the most with the Jewish state (80 percent), with Christians coming in second (73 percent), and Muslims third (62 percent).

Interestingly, the feeling of being a part of the state was stronger among those without higher education—with 75 percent of those without a high school diploma saying that they feel a part of the state—than among those with post-secondary education, with only 54.5 of those with a college degree reporting the same. 

Arab Israelis also strongly support (more than 85 percent) Arab citizens of Israel participating in volunteer efforts during the war, such as helping evacuees or providing medical assistance.

When asked about the recent statement by the leader of Israel’s Ra’am Party, MK Mansour Abbas, that Hamas’ actions on October 7 “do not reflect Arab society, the Palestinian people, and the Islamic nation”, more than 55 percent of Arab Israelis agreed with it, including 53 percent of Muslims. 

As for the current humanitarian crisis in Gaza, nearly 60 percent said that responsibility was shared by Hamas and Israel. The share that attributed sole responsibility to Hamas or Israel was roughly the same at 16 percent and 14.5 percent, respectively. 

A large majority (78 percent) of Arab Israelis say there has been no change in their relations with Israeli Jewish friends or acquaintances. Only 15.5 percent say that these relations have worsened since the start of the conflict. 

Yet, despite feeling a strong kinship with Israel and its society as a whole, 71 percent of Israeli Arabs said they do not feel comfortable expressing themselves on social media, 84 percent are worried about their physical safety, and 84 percent said that they are concerned about their economic security and prospects. More than half (51 percent) say they feel comfortable speaking Arabic in public spaces, but that number is down by 25 percentage points since the start of the conflict. 

One key consideration is that many Arab Israelis have close familial and friendship ties with Palestinians in Gaza and the West Bank. As such, there is a great amount of personal loss and difficulty in the background of the current conflict. The survey highlights, for instance, that of Arab Israelis who have family and friends in Gaza and the West Bank, 76.5 percent do not feel comfortable contacting them in the current social climate. 

Today Statistics Canada released inflation numbers for December 2023 that shows the inflation rate somewhat unexpectedly increased to 3.4 percent. We turned to The Hub’s resident economics expert Trevor Tombe to understand what these numbers mean. He breaks down the data and offers his perspective on whether or not—and to what extent—inflation will continue to grow in 2024. The upshot? We shouldn’t be too worried yet—the December inflation increase counterintuitively shows that inflation pressures are in fact easing, even if not as fast as some might hope.

SEAN SPEER: What should we make of the news that inflation actually increased from 3.1 percent in November to 3.4 percent in December? Is this a temporary blip that can be explained by contingent factors or is it a sign that inflation is stickier than we might have anticipated?

TREVOR TOMBE: This is a great question that highlights an important feature of inflation calculations that many don’t appreciate: they’re a year-over-year comparison. This means the December 3.4 percent rate is effectively the accumulation of twelve months of price changes since last December. Effectively, we drop last year’s December and add in this year’s to get the updated inflation numbers. Last year, there was an unusually large price drop and this year there was a relatively normal price drop. (Prices normally fall in December because of holiday sales.) So since last year’s unusually large drop was eliminated, that tended to make the 12-month total increase slightly.

The inflation rate of 3.4 percent for December 2023 was actually a sign that the average consumer price increase between November and December 2023 was relatively normal. It’s not necessarily a sign that things are going to get worse. And perhaps most interestingly of all, we’ll see this continue for several months. If everything from here on out proceeds normally (with monthly price changes aligned with a 2 percent annual inflation rate), then we’re not likely to see an actual drop in the headline inflation rate for the next several months, as I illustrate below. So, overall, December 2023’s number continues to show that inflation pressures are easing, even if not as fast as some might hope.

SEAN SPEER: There’s been a lot of talk about a so-called “soft landing” and the potential to bring inflation back to target without provoking a recession. What, if anything, do the December numbers tell us about that scenario? Are they a sign that we may need to see further tightening in the labour market and the economy more generally before inflation falls back to where it needs to be?

TREVOR TOMBE: Inflation has come down a lot from its 2022 highs, and much of this might be thanks to rising interest rates by the Bank of Canada. Not all, of course. Energy prices falling from their summer 2022 highs account for roughly 40 percent of the drop compared to December 2023. But if we look over the past year, the decline in inflation pressures is fairly broad-based. From groceries to communications to vehicles and more, most product categories are contributing less to inflation. Demand for many goods and services, especially those sensitive to interest rates, is showing particularly large drops in price pressures, as research by myself and my colleague Dr. Sonja Chen documented in a recent C.D. Howe paper.

The cost of this has been slower economic growth, however. Unemployment in June 2022, when inflation peaked, was less than 5 percent. Today, it’s nearly 6 percent. And overall economic growth has slowed to a crawl and is dramatically outpaced by population growth—meaning that on a per capita basis Canada’s economy is significantly smaller today than in recent years. Canada has avoided a central bank-induced recession so far, which some might consider a soft landing. I tend to view the data as showing a relatively successful reduction in inflation, but not one without costs. It seems to be shaping up to be a bumpy landing, but ultimately one we can walk away from without too many bruises. I’ll take it.

SEAN SPEER: There’s been some attention (including recently at The Hub) about wage inflation reflected for instance in the growth of wage settlements in 2023. Is there any concern in your mind that the persistence of wage increases (even as unemployment ticks up) may make it more difficult to bring inflation back down to target?

TREVOR TOMBE: Wage growth has indeed been rising over the past year. The latest data from the labour force survey shows average hourly wages are up 5.4 percent compared to a year earlier, and average weekly earnings are up 5.2 percent. That’s good news for individuals since that’s higher than inflation over the past year. So we’re slowly recovering our lost purchasing power. However, there is a valid concern that rising wages, which are a considerable cost to businesses, may wind up leading to further price increases as those businesses seek to cover those rising costs.

This isn’t a necessary outcome, though. If productivity growth rises, then rapid wage growth doesn’t actually increase business costs since each hour worked will produce more than before. So on a per-unit basis, labour costs don’t necessarily rise. The trouble is that Canada’s productivity performance has been pretty terrible over the past few years. Labour productivity growth has been negative for 12 of the past 13 quarters! This is my main concern. If productivity continues to fall while wages continue to rapidly rise, then something will have to give. Indeed, the Bank of Canada, for its part, highlights this as one of the key “upside risks” (that is, risks to inflation rising).

SEAN SPEER: What other factors are you following that could influence the Bank of Canada’s efforts to restore price stability?

TREVOR TOMBE: One of the biggest factors behind the current high rate of inflation is shelter. Much of that is housing costs. Average rents are rising at a rate of 10 percent over the past three months (on an annualized basis), property taxes are rising at 13 percent, home insurance at 11 percent, and, of course, mortgage interest costs are rising at an even more rapid 28 percent. Shelter is at the heart of the broader affordability challenge for many Canadians, especially in some of our largest cities. This is perhaps the single largest issue to keep an eye on.

Goods inflation has returned almost to relatively normal levels, including grocery price increases, which have essentially returned to normal (although price levels remain far, far above where they were). And excluding shelter costs, services inflation is also not a particularly large problem. It’s all coming down now to shelter costs, something The Hub has rightly highlighted as a challenge for quite some time. There are exceptions to this, of course. Restaurant prices are rising faster, for example, which might be related to wage pressures that we just talked about. But the biggest items, as I show below, are dominated by shelter-related items.

SEAN SPEER: How will December’s results influence the Bank of Canada’s thinking about interest rates? Do you think they may cause a delay in rate cuts this year?

TREVOR TOMBE: The main headline rate of inflation includes many volatile components that are a poor guide to monetary policy. The Bank needs to think about where Canada’s economy will be one to two years down the line. It does not react month-by-month to changes in the overall rate of inflation. Instead, it uses (along with many other pieces of inflation) measures of “core” inflation that strip out volatile components. It’s not that these volatile components aren’t important to individuals—all price changes can strain a family’s budget. But by stripping out the volatile components, the Bank gets a better indicator of where total inflation may be headed in the future. They’re better predictors, if you will. The December results, unfortunately, showed that three of the key core measures reversed the positive trend we were seeing. Over the past three months, those measures rose between 3.4 percent and 4.2 percent (on an annualized basis), which I plot below.

So for me, that probably means a modest delay in when we should expect rates to fall. I strongly suspect we won’t see a reduction in rates at the January 24 meeting. The one to watch will be March 6, and that might still be a coin flip. April and beyond may be when we see some changes. The Bank has been clear that it needs to see “further and sustained easing in core inflation” before it lowers rates. The December data shows we aren’t seeing that yet.