There are three interrelated things that stand out about the Lebanese crisis that has entered its 32nd month by June 2022: the disintegration of the banking sector, the collapse of the exchange rate regime, and the extent of poverty. While the first two have garnered a lot of analysis and debate, the third – the extent of poverty – hasn’t, except from some international organizations and NGOs, most notably the ESCWA[1].
The inter-relatedness arises from the fact that exchange rate depreciations – especially for an import-dependent country like Lebanon – translate via the pass-through effect into higher prices, which in turn impact negatively the cost of living and poverty, especially if these were not met by corresponding adjustments in income or wages[2]. So the crucial link is that of prices or the general price level. In this respect, the Central Administration of Statistics (CAS) has done a commendable job building a Consumer Price Index (CPI) for Lebanon since 2008 so as to gauge the cost of living in the country. The index is based on consumer surveys whereby the weight for each price category is set by the expenditure share on each of these categories by the median household.
[1] See: ESCWA, “Multidimensional Poverty in Lebanon”, 2021.
[2] In well-managed, developed economies, higher cost of living usually ignites higher wages to protect purchasing power. This could cause a wage-price spiral that is known as cost-push inflation. In Lebanon, however, most of the inflation we see is because of the pas-through effect.
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