Since September 2019, Lebanon’s economic landscape has been marked by severe turbulence, primarily driven by skyrocketing inflation and a staggering devaluation of the Lebanese pound against the US dollar. In September 2019, the Consumer Price Index (CPI) stood at a modest 108.85, but by the time we reached September 2023, that number had soared to an alarming 4,971.28. This four-year span witnessed a concerning inflation surge, accumulating at an astonishing rate of approximately 4,467%.
In more details, a major contributor to Lebanon’s inflation crisis has been the dramatic depreciation of the Lebanese pound (LBP) against the US dollar. In September 2019, the exchange rate was relatively stable, at LBP 1,700 for 1 USD. However, subsequent years witnessed an unprecedented free-fall, with the LBP plunging to a dire LBP 89,700 for 1 USD. This colossal devaluation, equivalent to 5,176%, sent shockwaves through the economy, particularly impacting the cost of imports and causing prices to soar. Lebanese citizens have felt the weight of this economic turmoil in their daily lives as their purchasing power eroded.
When we consider these staggering figures, with a 4,467% increase in inflation and a 5,176% devaluation in the Lebanese pound, we find that the path-through from weaker exchange rates to higher prices is approximately 86%. This high path-through rate is due to the high level of imports in Lebanon, such that currency depreciations drive up prices considerably and squeeze acutely the budgets.
Furthermore, Lebanon’s economic downturn also bore witness to a drop in production across various sectors. Indeed, political instability, unreliable access to essential resources, and ailing infrastructure took a toll on industries. This lack of production led to a higher dependency on imports, further exacerbating inflationary pressures. Furthermore, global developments exerted additional strain on Lebanon’s vulnerable economy. The conflict between Ukraine and Russia, along with the ongoing repercussions of the COVID-19 pandemic, played a role in the sharp increase in worldwide prices. A notable example was the surge in oil prices worldwide, which also had a notable effect on Lebanon’s inflation. Amid this inflationary storm, certain categories of goods and services bore the brunt of rising prices. The five primary contributors were new rent, alcoholic beverages, food and non-alcoholic beverages, housing, water, electricity, gas, and other fuels and finally clothing and footwear.
Lebanon’s inflation from September 2019 to September 2023 is not only a tale of economic hardship but also a testament to the complexity of global economics. The country’s dependence on imports, political instability, and international events combined to create a perfect storm of price surges. In a nation where resilience is embedded in its history, the path to recovery remains uncertain. Still, the people of Lebanon persevere, hoping for brighter days ahead.