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Cost of living on the rise

Nov 26,2017 - Last updated at Nov 26,2017

For several years, inflation rate in Jordan had dropped to a very low level. The reason is believed to be the economic recession, both local and worldwide.

Prices now are on the rise. The inflation rate during the first 10 months of 2017 rose by 3.4 per cent compared to the same period of last year.

In the absence of major reasons for the present rise in inflation rate, it could be attributed to the excessive issuance of currency by the Central Bank. Cash in circulation has risen by 9 per cent, which is a very high rate within a short period.

The increase of cash in circulation could be one of the results of the effective participation of the Central Bank in dealing with low economic growth. The bank made big amounts available to companies, and other development outfits and projects, the bulk of which is meant for the countryside as part of a plan to motivate economic growth and alleviate unemployment.

The plan was adopted by the government and recommended by several economic specialised councils. The bulk of the financial burden was placed on the Central Bank.

Consumer prices, especially related to vegetables and fruits, were supposed to decline due to the closure of the Iraqi and Syrian markets, which would have meant increased supply locally, but, to the contrary, it seems that extra demand from non-Jordanian consumers, who are estimated to have hit the 3 million mark, caused prices to rise.

If the inflation rate remains at the present high level, one may see some advantages, such as higher gross domestic product, which would make it easier for the government to reduce debt as a percentage of GDP, an objective set by the economic reform programme supervised by the IMF.

However, it is feared that inflation and rising costs of living may continue to rise to a degree that threatens social stability and causes some troubles, giving rise to demands to raise salaries and wages, which will raise the cost of production and hurt the competitiveness of Jordanian products in export markets.

The inflation rate has recently risen worldwide, following the recovery of the world economy and higher growth rates.

Unlike world inflation, inflation in Jordan did not happen gradually. It made a jump within a short period of time, and it may become a trend that could continue for some time, A state of affairs that calls for close monitoring by the authorities, on monthly basis.

At this time, when the monetary authorities are applying an expansionist policy, we will find that the government draft budget for 2018 will be contract, making public expenditure in 2018 to be lower than in 2017.

One can see this contradiction as a sort of coordination between fiscal and monetary policies.

It seems that fighting inflation is no longer the government’s priority; it appears to give priority to economic growth, even if it means higher inflation.

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