BEIRUT — The latest report on consumer prices issued by the Central Administration of Statistics showed that inflation has continued to rise at triple digits in Lebanon, while rest of the world suffers from the impact of Russia’s invasion of Ukraine.
Here’s what we know:
• Consumer prices in Lebanon increased 210.08 percent from June 2021 to June 2022. Overall prices have increased twelve-fold since October 2019, as the lira is trading on the parallel market at 20 times the peg of LL1507.5 to the US dollar.
• Rising prices for water, electricity, gas, and fuel were the biggest reason for the jump in inflation in June; the price of these utilities was up 19.31 percent from the month before, and 594.46 percent from June last year. The Central Administration of Statistics report revealed that alcoholic beverages and tobacco have risen 16.69 percent month over month.
• The bimonthly balance sheet published by Banque Du Liban showed foreign assets dropping by another $225 million, bringing the total reserves depletion to $2.7 billion for the year. Lira in circulation increased by LL2.3 trillion, reaching LL41.2 trillion. This number is still LL4 trillion to LL5 trillion lower than the levels seen in December and January, when the central bank began its intervention in the currency market, selling US dollars in unlimited amounts at the rate set on BDL’s Sayrafa platform through Circular 161.
• The parallel market rate, at LL29,600 to the US dollar remains 15 percent weaker than the Sayrafa rate at LL25,600 to the US dollar, but is better reflective of market fundamentals than the defunct peg at LL1507.5 to the US dollar. This is especially the case since the government has begun using the Sayrafa rate in pricing telecom charges and as a reference rate in the calculation of revenues in the 2022 budget.
• By way of comparison, the consumer price index in the US increased 9.1 percent from a year ago in June, after rising 8.6 percent in May. Last month, the US Federal Reserve announced the largest rate hike in 28 years, moving its benchmark rate by three-quarters of a percentage point — the biggest hike since 1994. This came on the back of a quarter-point increase in March and a half-point in May. Some market participants expect the Fed to hike by another 0.75 percent in its next meeting on July 27.
• Consumer prices in the Eurozone are also surging at their fastest pace, reaching 8.6 percent in June from a year earlier, and driven by rising energy and food prices. This prompted the European Central Bank to raise interest rates by half a percentage point on Thursday, its first increase in more than a decade. The Euro has briefly traded below parity last week, before edging back to EUR1.02, but still down around 10 percent since the beginning of the year.
• Meanwhile, consumer prices in the UK rose 9.4 percent in June from a year earlier, its fastest pace in 40 years. The Bank of England raised interest rates on June 16 from 1 percent to 1.25 percent. This was the fifth consecutive rise, pushing interest rates to the highest level in 13 years.
• The Turkish central bank, defying common practices, decided to keep interest rates unchanged in its meeting on Thursday, even as annual inflation reached in June a 24-year high of 80 percent. The Turkish lira has traded above TRY17.50 to the US dollar, bringing losses to more than 25 percent since the beginning of the year.
• Kristalina Georgieva, the managing director of the International Monetary Fund, said in a blog post published last week that “countries must do everything in their power to bring down high inflation” because “persistently high inflation could sink the recovery and further damage living standards, particularly for the vulnerable.” She also noted that high inflation has led to 75 central banks raising interest rates since July 2021.