What’s the truth about Lebanon’s soaring inflation rate?
Arabian Business- Hanke | November 27, 2020
Lebanon’s monthly inflation rate soared to a record high of 136.8 percent in October, according to official figures but the rate could be as high as 365 percent, says one of the world’s top experts on measuring hyperinflation.
Latest figures from the Central Administration of Statistics (CAS) indicates the lower rate but Steve H Hanke, a professor of Applied Economics at Johns Hopkins University in Baltimore, insists Lebanon has now overtaken Zimbabwe to take second place in the ranking of the world’s highest inflation rates.
Hanke told Arabian Business “In their October report, the Central Administration of Statistics reports Lebanon’s Inflation to be 136.8 percent. This is wrong. While Lebanon’s government produces corrupted facts, I utilise purchasing power parity (PPP) principles and high-frequency data to accurately measure inflation.”
He added: “It’s rather shocking to watch Lebanon’s politicians fiddle, while Beirut burns. Lebanon’s wheels are flying off. The pound has soared to 8,500 LBP/US dollar in the free market. Consequently, inflation, which I measure each day, is surging. To save Lebanon, a currency board must be installed immediately.”
A currency board is a monetary institution – or set of laws governing a central bank – that issues a domestic currency that is freely convertible at an absolutely fixed exchange rate with a foreign anchor currency, Hanke explained
“The domestic currency, which is issued by a currency board, is backed 100 percent with anchor currency reserves. So, with a currency board, the local currency is simply a clone of its anchor currency,” Hanke said.
Hanke claimed only Venezuela, where the annual inflation rate at the end of October by his measure was 2,133 percent, is the only country ahead of Lebanon.
“So, Venezuela and Lebanon are members of the rogues’ gallery of hyperinflation episodes, of which there have only been 62 in recorded history,” he added
By contrast to October, the official inflation in Lebanon was 11.4 percent and 17.5 percent in February and March, respectively.
For more than 20 years, the fixed exchange rate helped Lebanon to maintain average annual inflation at about 3 percent but since the start of 2020, Lebanon’s currency depreciated sharply and made imports much more expensive.
In fact, Lebanon’s currency depreciation made imports more expensive, driving half of the population into poverty, struggling to provide their basic needs, according to the United Nations.
The Central Administration of Statistics’ Consumer Price Index registered a fourth consecutive triple-digit increase while the CPI, which measures changes in the prices paid by consumers for a basket of goods and services, grew by 3.9 percent in October from the previous month.
All sub-components of the latest official consumer price index increased. Furnishings, household equipment and routine household maintenance registered the highest surge at 695 percent in October.
The cost of food and non-alcoholic beverages rose just over 441 percent from last year.
Prices for water, electricity, gas and other fuels rose only 23.3 percent a year because the government maintained subsidies for petroleum products.
Clothing and footwear were nearly 468 percent more expensive, while prices at restaurants and hotels rose by almost 589 percent, transportation (+133 percent), communication (+88 percent), healthcare costs (+16.8 percent), actual rents (+11.8 percent), imputed rents (+6.9 percent), and the cost of education (+10.2 percent).