Probable inflation after a price hike in Jordan

Probable inflation after a price hike in Jordan
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Published June 5th, 2012 - 07:23 GMT via

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The private sector will not be worried by any price hikes because additional costs will be reflected directly on consumers
The private sector will not be worried by any price hikes because additional costs will be reflected directly on consumers
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Experts believe the government should have limited hikes in power prices on large businesses and high-income earners in order to keep inflationary pressures under control and not to affect economic growth. Late last month, the government said it had approved a new electricity tariff system under which the prices of electricity sold to banks, hotels, mining firms and other corporate consumers will be adjusted.

The government also decided to increase the prices of high quality 95-octane gas from JD0.795 to JD1 per litre and “adjust” those of liquid gas sold in bulk, heavy oil, fuel sold to local and foreign jet planes, kerosene sold to vessels and asphalt, a set of decisions, it said, that would not have a direct impact on medium- and low-income Jordanians. But on Saturday, the government raised electricity rates on households consuming over 600 kilowatts per month and on subscribers from the commercial sector that consume over 2,000 kilowatts every month (see separate story). In remarks to The Jordan Times, economists, representative of food merchants and consumer advocate agreed that the new measures will push inflation rates up.

Economist Ibrahim Saif, a resident scholar at the Carnegie Middle East Centre, said government decisions to increase electricity tariffs and prices of some commodities came at a time when economic activity in most sectors was suffering major contractions, which he said will result in a combination of higher inflation rates and further economic slowdown. “Such scenario of slowdown and rising living costs is one of the worst situations for the state,” he said, indicating that, as a result, the gross domestic product (GDP) is not expected to exceed 2.5 percent this year.

The private sector will not be worried by any price hikes because additional costs will be reflected directly on consumers, he said, saying: “It is not acceptable any more to increase taxes and search for ways to raise public revenues without giving serious attention to reviewing and enhancing public spending”. President of the Socio-economic Council Jawad Anani said the economy could absorb inflation if electricity price hikes were only targeting large businesses. Raising the prices of non-basic commodities and services does not mean that the consumer price index will go up because demand on such products will slow down, Anani, a former Royal Court chief and several-time minister, said.

Referring to the first package of price hikes late last month, economist Yusuf Mansur warned that the government should not have made another round of increases in commodity prices and power tariffs on households and the commercial sector as consumers will pay the price. The government is currently thinking of raising the price of 90-octane gas over fears that demand for the cheaper product may outweigh supply, he said. In regards to economic growth, Mansur sounded optimistic due to external factors. He said that the GDP has an opportunity to expand beyond projected rates due to the continuing decline in the value of the euro against the dinar and the US dollar. “The drop in the euro may reduce the Kingdom’s import bill which will ease pressure on the dinar,” he explained, indicating that Jordan suffers around JD2 billion in trade deficit with European countries.

President of the Consumer Protection Society Mohammad Obeidat also protested Saturday’s round of price hikes in electricity tariffs, saying this will place further financial burdens on consumers, whose incomes, according to him, are being eaten away by the already rising living costs. He indicated that the decision will give merchants and manufacturers the excuse to raise the prices of their products and to maintain or even increase their profits. President of the Foodstuff Traders Association Samer Jawabreh said the rising energy costs will push food suppliers and merchants to take what he termed as “bitter” options, hinting that they only have to charge higher prices on several goods, such as frozen meat, poultry and dairy products, to offset additional costs they are going to incur.

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