Lebanon suffered another dramatic inflation surge in July as the country’s financial meltdown continued with no end in sight, Bloomberg reported.
Consumer prices rose an annual 112.4%, compared with just under 90% in June, according to data released by the official Central Administration of Statistics on Wednesday. Inflation was below 20% as recently as in March.
Price growth is soaring to levels last seen in the aftermath of the country’s civil war three decades ago after Lebanon’s currency depreciated sharply on the black market and made imports more expensive. Politicians remain at loggerheads over solutions to the economic and financial crises even after a devastating blast in Beirut earlier this month.
The cost of food and non-alcoholic beverages rose just over 336% compared with last year. Prices of housing, water, electricity, gas and other fuels rose only an annual 11.6% because the government has maintained subsidies for petroleum products. Clothing and footwear were nearly 409% more expensive, while prices at restaurants and hotels rose by almost 473%.
Lebanon’s peg to the dollar has increasingly withered after the government’s default on $30 billion of Eurobonds in March. The local currency is now trading at around 7,000 to the dollar, compared with a fixed official exchange rate of 1,507.5.
A United Nations agency has estimated that more than half of the country’s population is now trapped in poverty and struggling to meet basic needs.
The central bank has been using what little is left of its foreign-currency reserves to subsidize purchases of fuel, wheat and medicine at the original peg and other essential food items at 3,500 pounds per dollar.
Bloomberg quoted Central Bank Governor Riad Salameh as saying that he’s in the process of finding new ways to support trade because the central bank would have to stop subsidies if it needs to dip into the cash reserves that commercial lenders are required to hold with the monetary authority.
“Once we reach the threshold of these reserves, we will be forced to stop funding,” Salameh said. “Nevertheless, we are in the process of creating other means of financing.”
The central bank will only subsidize fuel, wheat and medicine for three more months, an official source said last week.
The source told Reuters the central bank had informed the government it would end the subsidies then to prevent reserves from falling below $17.5 billion.
