Daily Times

The Department of Statistics has revealed that prices, measured by the cost of consumer basket of goods and services bought by the average Jordanian family, rose in February of this year by 4.56 per cent over the same month of last year.

Statistics showed also that core inflation, which excludes the fluctuating prices of food, fuel and related item such as transport and lighting, has risen by 2.93 per cent.

The year 2017 began with an unexpected jump in the level of inflation, which could be just the beginning of a trend that could accelerate in the coming months.

Of course, the recent measures taken by the government to secure JD450 million additional revenue, is responsible at least in part.

The price rise caused by the government’s measures is a onetime shot. Prices may stabilise soon at around 3.5 per cent.

This inflation wave comes after two years of negative inflation, which means a major change of direction as far as the Jordanian family budget or the budget of the central government are concerned. Economists did not like the negative inflation of the last two years because it was indicating a sort of recession and economic contraction. Will they accept and welcome the present positive inflation as an indication that the economy is finally making a comeback and that growth is happing again?

Inflation hurts limited-income consumers, but a modest measure of inflation may be beneficial from the national economy and productive sector point of view.

According to the economic literature, a 3 per cent inflation rate is ideal. Inflation is good for the public finance. It increases domestic revenues, reduces the debt burden, raises the gross domestic product calculated in current prices, which helps reduce debt as a percentage of GDP, thus helping achieve one of the most important objectives of the IMF economic reform programme. Of course, a sudden growth of inflation rate will have a negative impact on the monetary stability, a basic objective of the central bank. Naturally, the central bank will take notice, but it is not expected to look seriously at this development, which may be seen no more than a correction of the negative inflation that persisted over the past two years. The central bank has already raised the interest rate on the dinar, which is one of the instruments used by central banks to suppress inflation. The recent initiative of the central bank, guiding licensed banks to establish investment companies, will result in the withdrawal of a sizeable cash liquidity from the banking system to cover the paid up capital of these companies.

This is another step to face inflation. Shifting from negative to positive inflation needs a lot of adjustment. It is believed that the high inflation rate that started recently will not call for emergency measures. It might be seen as a correction of the negative inflation that persisted for too long.