About the current sources of growth and inflation

Yusuf Mansur
Yusuf Mansur is CEO of the Envision Consulting Group and former minister of state for economic affairs. (File photo: Jordan News)
Economic growth is somewhat accelerating and so is inflation as measured by the Consumer Price Index (CPI). It is important to know where the growth in the GDP and prices came from. اضافة اعلان

According to the Jordan Department of Statistics, the GDP grew by 2.6 percent at constant prices in the fourth quarter of 2021 compared with the same period of 2020. Also, the Consumer Price Index for April 2022 increased by 3.59 to reach 105.99 against 102.31 for the same month of 2021. 

The growth in the GDP (2.6 percent) was caused by growth in the Construction Sector (6.1 percent), followed by the growth in the Mining and Quarrying Sector (5.6 percent). Note that for the year 2022, the Mining and Quarrying Sector will grow substantially due to the disruptions and delays in the global supply chains, increased demand for fertilizer (Jordan is a main exporter of phosphate and potash), and the Russia-Ukraine War, which interrupted the supplies of phosphate and potash and other commodities from these two main producers. 

Another sector which grew at above the overall rate was the Wholesale, Retail Trade, Restaurants and Hotels Sector, which grew at 3.5 percent, and is also expected to grow even further as all restrictions related to COVID are removed and supply meets the rise in demand. Note that the demand will not ebb this year as evidenced from the current tourism data. 

Hence, short of a policy induced supply shock, the economy should grow, not at 2.6 percent but more and above the IMF predicted growth rate, which would be also good news for the budget whereby a reduced budget deficit becomes possible as inflation increased further government revenues.

According to another report by Dos, there is also an increase of 3.59 percent in the Consumer Price Index for April 2022 to reach 105.99 from 102.31 for the same month in 2021. The rise in prices was mainly due to increases in the prices of Fuels and Lighting (1.28 percentage points), Transportation (0.73 percentage points), Vegetables and Legumes Dry and canned (0.43 percentage points), Meat and Poultry (0.19 percentage points), and Oils and Fats (0.16 percentage points). 

On a month-by-month basis (April relative to March), the Consumer Price Index reached 105.99 for April 2022 against104.7   in March 2022, sustaining thus an increase of 1.20 percent. The main contributor to the increase was a 1.13 percentage point increase in the price of Fuels and Lighting, followed in second place by Meat and Poultry (0.16 percentage points). 

Therefore, according to official data, the majority of the current inflation has been caused by the increase in the price of Fuels and Electricity, an expenditure item that is controlled in terms of quantity and price by the government. This item also enters into the cost of production and consumption of all things and their prices. Consequently, if a policymaker wishes to truly combat inflation, the tools are readily available.

Based on the above, policy makers should focus on growth, even at the cost of truly subsidizing energy to industry. The manufacturing sector, which only contributes 17.8 percent of the GDP and has been contributing this percentage for over five decades, needs to grow. For a achieving the required, smart and sustainable growth rates, innovation must emerge from a solid and equitable partnership between the public and private sector.

The writer is CEO of the Envision Consulting Group and former minister of state for economic affairs.

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