The annual change in the Consumer Price Index (CPI) of March 2024 (published by the Central Administration of Statistics in Lebanon) decreased to 70.36 % relative to March 2023 was noteworthy. This decrease came after three years of successive increases out of any control, where the maximum increase was in March of the past year with 263.84%. At a time when none of the macroeconomic indices knew a real enhancement from the beginning of the financial and economic crisis, this decrease came at the same time with many factors pushing toward price increases.
The factors contributing to rising prices and Lebanon’s inflation are multifaceted. They include the increased customs dollars and the exchange rate for collecting taxes and fees, which was raised in the 2024 public budget. Additionally, the value of new and renewed leasing contracts increased. Sea freight and insurance contracts also increased due to the threat of navigation in the Red Sea, which increased prices by 15%.
Internal factors and the rise of international market prices contribute to price hikes in Lebanon. It’s important to note that Lebanon’s most consuming needs are imported from foreign markets. In 2023, Lebanon’s import ratio to GDP reached 109% when food commodity prices were rising worldwide, and the inflation rate exceeded 5%, as reported by the World Bank on food security.
Between December 2022 and December 2023, Lebanon reached the second-highest inflation rate of food prices worldwide. The annual change ratio of food price inflation in Lebanon was second to Argentina, reaching 220%. This ratio exceeded Venezuela’s and Turkey’s. Concerning the real inflation rate, Lebanon ranked seventh highest in the price of food changes worldwide, reaching 8%, followed by Turkey with 7%, according to the World Bank.
The March 2023 CPI rise was directly due to the increase in the dollar exchange rate against the Lebanese pound, which reached 140 thousand Lebanese pounds and then decreased to 107 thousand before reaching the actual price (89500 LP). On the other hand, the decrease reached by the CPI in March 2024 is still significant compared to the CPI’s annual change for February 2024, which reached 123.21% for February 2023.
Meanwhile, the March 2024 CPI rise is due to the increase in some spending sections, especially on education, which exceeded 589%. The new leasing contract cost rise exceeded 212%, while the average cost of some habitation expenditures was more than 108%, pushing the CPI up again.
The chance of the CPI rising to higher levels is likely high if the rise in food and non-alcoholic beverages exceeds 51%. The increase in transportation prices and health care services amounted to only 13%, while clothing prices increased to 45%. The moderate increase in these expenses allowed the overall CPI rate to decline as the cost of other expenses decreased.
On the other hand, the CPI continued to rise from February 2023, slower than before. So, the CPI rose to 25.52% for January and 33.27% in March compared to February 2023. This index declined in June 2023 to 7.21% relative to May 2023 and continued its decline in September to 1.4% relative to May 2023.
In November 2023, the CPI increased slightly to 2.6% compared to October and decreased to 1.06% in February 2024 compared to January 2024. The CPI for March 2024 increased to 1.72% compared to February 2024, although a decrease in the annual change of the consumer price index relative to March 2023 marked March 2024.
These numbers depict that the CPI was rising monthly, with successive slight rises. But in the end, those rises resulted in a rise in prices and an increase in the inflation rate. The inflation ratio rose in March 2024, for example, to 60.26% compared to what it was in February 2024. (Inflation rate = {New CPI – Old CPI} / Old CPI *100).
Despite the importance of the decline in the annual change in the CPI between March 2023 and March 2024, the inflation rate continued to rise, negatively affecting the national currency’s purchasing power and depriving the Lebanese of a decent life.
However, inflation can be mitigated by increasing public expenditures to stimulate the national economy, which is now unreachable due to the financial state deficit. Inflation mitigation can also be achieved by controlling the amount of money in circulation and keeping the exchange rate stable, which is unachievable because of increased state expenditures and its employees’ salaries and wages.
On the other hand, the decline of the Lebanese purchasing power and the erosion of their incomes constitute neat evidence of the continued rise of prices either in the Lebanese pound or the Dollar and an indicator of worsening the inflation rate, whether creeping or rampant.
Monetary policies do not compensate for financial policies and the incompetence of state institutions. In this situation, the concerned departments’ efforts must be combined to resolve the financial and economic crisis and address its complications, especially inflation and its repercussions.
