Lebanon inflation soared in July as term of central bank governor ends

July consumer price index was about 7 per cent higher than the previous month

People queue at a currency exchange in Beirut. The central bank of Lebanon implemented a new official exchange rate of 15,000 Lebanese pounds to the US dollar at the start of February, weakening the currency by 90 per cent. EPA
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Inflation in Lebanon hit an annual 252 per cent in July as the term of central bank governor Riad Salameh ended last month and a political impasse over the election of a president persisted amid the country's worst economic crisis.

Hyperinflation continued for the 37th consecutive month as the country's currency continued to lose value on the parallel and official markets since it was devalued by 90 per cent at the start of February.

The increase in the cost of living was led by the soaring cost of housing, water, electricity, gas and other fuels, as well as a surge in the price of food, non-alcoholic beverages and transport, the Central Administration of Statistics' Consumer Price Index showed.

The CPI increased by about 7 per cent from June 2023.

Food prices which account for 20 per cent of the consumer price index, soared by 279 per cent while housing, water, electricity, gas and other fuels – which have a 28 per cent weighting – were up 234 per cent.

Health costs, which represent about 8 per cent of the index, rose 257 per cent and transport, which has a 13 per cent weighting, leapt 222 per cent.

Lebanon's inflation rate began to decline after hitting 171 per cent last year, the highest in about four decades, and 155 per cent in 2021.

However, it started to pick up early this year as the country's central bank devalued the Lebanese pound in February.

The official exchange rate changed to 15,000 pounds to the US dollar, compared with the peg in place since 1997 of 1,507.50 to the dollar.

Since 2019, the country has been in the grip of an economic crisis described by the World Bank as one of the worst in modern history.

It has yet to enforce critical structural and financial reforms required to unlock $3 billion of assistance from the International Monetary Fund, which could also pave the way for billions more in aid from other international donors.

Lebanese politicians did not appoint a successor to Mr Salameh, who was at the helm of the central bank since 1993 and is now blamed by many Lebanese for the economic collapse of the country. Under Lebanese law, first deputy governor Wassim Mansouri is now overseeing the financial regulator in acting capacity supported by three deputy governors.

While the immediate takeover avoids adding further uncertainty to Lebanon's precarious position, the country still needs to appoint a president.

Lebanon has been without a president since the end of October 2022, when the six-year term of Michel Aoun ended. It is being run by a caretaker cabinet led by Prime Minister Najib Mikati, with limited powers.

The election of a president requires the consensus of the country's political elite.

Political vacuums have stalled Lebanon's economic progress and the existing one is salient because it threatens the enactment of reforms deemed necessary for the nation to emerge from its worst financial crisis.

The country was without a president for two and a half years until Mr Aoun's election by the 128-seat parliament in 2016.

His predecessor, Michel Sleiman, was elected in 2008 with the help of Qatar and after 19 postponements in parliament, ending an 18-month political crisis.

In June, the IMF warned that further delay of reforms would keep confidence low while cash dollarisation of the economy would increase, causing the national currency to depreciate further and keeping inflation high.

Lebanon's economy contracted by about 58 per cent between 2019 and 2021, with gross domestic product falling to $21.8 billion in 2021 from about $52 billion in 2019, according to the World Bank. It was the largest contraction on a list of 193 countries.

The World Bank estimates that real gross domestic product declined by 2.6 per cent in 2022 and is projected to contract 0.5 per cent this year.

Updated: August 21, 2023, 9:44 AM