While the lira is stable…why are prices rising?

Eva Abi Haidar wrote in Al-Joumhouria newspaper: “A year has passed since the Bank of Lebanon’s last intervention in the market, buying the Lebanese pound through a banking platform at the limit of 90,000, and since that date, that is, about a year ago, the price of the lira against the dollar has been fixed, while the prices of commodities have been stable.” Services are constantly fluctuating and changing incrementally. Why did this not also stabilize with the stability of the dollar? What factors contributed to its rise?

Abi Haider continued,

In the years that followed the start of the financial crisis in Lebanon in October of 2019, several attempts were made by the Central Bank to intervene in the market, during which it contributed to an artificial decline in the price of the dollar against the lira, the last of which was on March 21 of last year when it was announced that the Bank of Lebanon was launching a process… It is open to selling dollars through the “Sarfa” platform, at an exchange rate of 90,000 liras to the dollar, in an attempt to put an end to the worsening decline in the lira’s exchange rate.

This measure led to a rapid decline of the lira in the parallel market from about 140,000 to 105,000 liras, reaching 89,500 liras, the price at which the dollar has been stable for about a year until today. However, this decline in the exchange rate, estimated at about 40% before it stabilized, was not matched by stability in commodity prices, which continued to rise, affected by several factors, so that it can be said that the cost of living in Lebanon has returned to what it was before the crisis. There is sometimes a rise in the prices of some goods and services, exceeding what they were in 2019, while salaries and wages have not caught up to the rates that were common before the crisis. What are the reasons? What are the factors that contributed to raising commodity prices? Are they all state-made?

In this context, the head of the Food Importers Syndicate in Lebanon, Hani Bohsali, told Al-Jumhuriya, “There are two elements that must be considered. The first is the cost element, and the second is the general inflation element. The seller of the commodity or the merchant has the cost of the price of the merchandise and the operational cost of the company (employee salaries, rent, receipt of the merchandise…), both of which affect the price of the final product displayed on the supermarket shelf. To these costs, from November 2022 until April 2023, was added an increase in the price of the customs dollar, which increased from 1,500 liras to 90,000, which reflected an increase ranging from 2 to 22% in the prices of goods. The prescribed value-added tax rate also increased by 11% from 1,500 liras to be calculated according to the official exchange rate. In addition to all these taxes, the 2022 budget noted an increase in the flat duty on all goods by 3%, which means that all goods subject to value-added tax were added to it. A new tax of 3%.”

Bohsali continued: “All of these factors are classified among the direct costs that affected the prices of goods, but there is no doubt that there are indirect costs such as the rise in fuel prices, direct inflationary factors resulting from the rise in fees and taxes imposed by the state, which are generally not less than 15 to 20%… All of these factors contributed to an increase in the company’s operating costs, which was reflected in an increase in commodity prices. This explains why prices in dollars are not stable.”

In a parallel context, Bohsali was asked: Have global commodity prices stabilized during this year?

Bohsali confirms that during this period there was a global decline in the prices of some commodities and an increase in others, but there is certainly global inflation ranging between 3 and 5%. For example, the price of rice and coffee in the previous two years is more expensive than it is today, as a result of global inflation. This is before talking about local taxes, so it is not permissible to say that once goods are priced in dollars, they will remain constant.

Bohsali continued: “In addition to all these reasons are social and political factors, including the Gaza War, the Red Sea crisis, and the high shipping costs for goods coming from the Far East… These factors led to an increase in prices between 2 and 15% at the cost of the goods.”

In response to a question: If we take all these reasons together, including taxes, customs duties, TVA, operational costs, direct and indirect causes, the repercussions of the Gaza war, and high shipping costs, Bohsali confirmed that it can be said that the prices of goods increased by no less than 15% within a year. .