Combating predicted inflation

Yusuf Mansur
Yusuf Mansur is CEO of the Envision Consulting Group and former minister of state for economic affairs. (Photo: Jordan News)
The doomsayers in Jordan are talking about unmatched inflationary pressures that will fully eclipse the economy. The highest unemployment rate in 30 years coupled with the inflation and its predicted magnitude, which although not really known is already tagged as “huge”, make for an unwelcome combination. اضافة اعلان

But while the scapegoats and branded bearers of the blame for the inflation are arguably the merchants (importers, distributors, wholesalers, and retailers), the responsibility should be borne by all, as should the obligation to act to curtail some of the forecast inflation-unemployment nexus.

The predicted inflation could be attributed to developments in the global arena. The disruption of supply chains around the world as a result of the pandemic, which caused significant upsurges in the cost of production, slowdowns in delivery, and even work stoppages, is already old news. In addition, demand increased in the developed countries where central banks and treasuries flooded the markets with liquidity and facilitated access to finance, which resulted in huge inflationary pressures.

Furthermore, millions of workers in the developed economies have voluntarily opted out of the labor market in search of a more meaningful life beyond work.

A new reason for the rise in inflation worldwide is the Russia-Ukraine war, which is causing the prices of commodities to rise worldwide.

Jordan, which imports 87 percent of its caloric intake and 93 percent of its energy needs, is of course highly vulnerable to global increases in commodity prices.

The design of relief should take into consideration several factors. The rise in food prices will overwhelmingly affect the poor more than the rich, as the former spend a larger share of their incomes on food than the latter. Hence, any policy aimed at reducing the impact of the predicted inflation should focus on the welfare of the poor first.

Those whose incomes are fixed and consist mainly or solely of wages are more likely to be worse hit than the rich whose incomes are generated by their assets, which increase (at least partially) in value with inflation, making the return and their total income increase as well.
Lowering customs duties, taxes and fees on basic commodities should be a policy tool. Reducing the cost of energy by as much as possible by taking away some of the special taxes to counter the global price increase should be a possibility.
The resolution of distressed loans that resulted from COVID-19 and the containment policies of the government should be delayed to avoid the social cost of debt distress. A wider access to credit should be encouraged since Jordan is not in a high inflation period like the developed countries, and businesses and people in jordan have been spending from savings, not from income.

Lowering customs duties, taxes and fees on basic commodities should be a policy tool. Reducing the cost of energy by as much as possible by taking away some of the special taxes to counter the global price increase should be a possibility.

The government must also conduct its own research into the components of any price hike. That is, it should be able to dissect the components of the price and determine the percentage of the hike that is due to global factors and the percentage that is due to collusive behavior. Should the price rise of a commodity be due to implicit or explicit collusion, Article 5 of the Competition Law No. 33 for the year 2004 should be invoked. The proof of collusion would be relatively easy. If the large importers move in a coordinated or semi-coordinated manner, this would be evidence of a collusive behavior, and should trigger a deeper probe.

In short, the inflationary damage, with its gale of damage to welfare, should not happen in Jordan. The economy has already been badly hit by the pandemic, but while economic policy played second fiddle to the medical crisis, it need not continue to do so.

Let us not be “surprised” by the predicted inflation.


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


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