Wednesday, September 12, 2007

Ramadan and prices

Well, it is that time of year again. Ramadan is tomorrow, and we will have a binge of consumerism, laziness, self righteousness and bad temperedness cloaked in a disguise of piety. This is not the way it’s supposed to be, but there you have it. As happened last year, food prices have risen in response to increased demand. More this year as the dairy producers have raised the prices by about 40% in response to the raising of cattle feed prices by the government. This poorly timed wave of price rises has caused alarm, with even the king demanding intervention by the government to hold back prices.

In the old days, there used to be a ministry of supplies. This ministry used to publish daily the maximum price of various vegetables and fruits, and had the mandate to punish merchants who overcharged. The prices of dairy products, rice, sugar and other basic foodstuffs were also set by the ministry. This quaint system was abolished in the mid 90’s, as the country moved to a market economy where forces of supply, demand and competition would determine prices. Many people are nostalgic for the old days, although there is now no legal mechanism to enforce prices. So, what is the government going to do to alleviate this inflation?

What else would a government do? They formed a committee, of course. Then the PM asked the chambers of commerce and industry, nicely, to please lower the prices. Dairy producers agreed to lower their newly inflated prices by 10%. On the other hand, the cement company responded by raising their prices.

The government owns its own supermarkets that nominally only sell to civil servants and to military personnel. These supermarkets enjoy tax breaks and are cheaper than privately owned ones. This has often been a source of tension, as private merchants complain about unfair competition; especially that monitoring whether shoppers are entitled to enter is typically (and predictably) lax to non-existent. Well, now this pretence is gone and the government has officially allowed anybody who wants to enter to do so.

The government is also sponsoring open air markets to allow direct selling of produce from the producer to the consumer. It is not obvious how well this will work.

It seems to me that all of this is baloney. This interference in the market is a temporary fix that can not be sustained. If the government wants to help people deal with rising prices, they can tie wages with inflation. The taxes they collect go up with the rate of inflation, so it is not unreasonable to ask that wages go up at a reasonable pace to match inflation. On the other hand, peoples shopping habits, especially in Ramadan, need to be reconsidered.

May you have a happy and blessed Ramadan. And take it easy on the gatayif.


At 11:53 PM, Blogger Mohanned said...

" They formed a committee, of course. "

HAHAHA, gotta love committeeeeezz.
Happy ramadan my friend..

At 2:01 AM, Blogger Unknown said...

would you please elaborate on the 'tying salaries with inflation' idea?

what do you mean by it? how would it work?

wouldn't such a policy create a loop that would just keep raising inflation (and eventually bringing the JD to the ground - since after a whiel the central bank won't be able to tie it to the dollar anymore)

At 3:32 AM, Blogger Maher said...

So true man! things will get worse tom!
Qatayef o absar shoo..kolo ra7 yseer a'3la!

Ramdan Kareem!

At 5:24 AM, Blogger Khalaf said...

Mohanned: :)

Arrabi: In Jordan, the government typically blames inflation on the cost of imports. Thus, it has little to do with monetary policy. You are right, though. This would be a concern. On the other hand, having wages keeping up with inflation is not a novel idea. Wages in Jordan are not very different now than in 1987. In the west, this would be an outrage because wages should be enough for people to live (note my post on that a few days ago). There could be an official formula (which may not be recommendable do to the concern you mentioned), or an unofficial policy to raise wages periodically to help people cope.

Maher: Welcome.

At 7:12 AM, Blogger Abu Daoud said...

Ramadan kariim for all of my Muslim friends.

I will tell you that food prices all over the world are going up. Also, the fact is that a country like Jordan has very little in the way of natural resources (farm land and water and grazing land).

As population increases, prices have to increase as well.

At 7:23 AM, Blogger Khalaf said...

The government committee should take care of that ;)

At 7:07 PM, Anonymous Anonymous said...

Happy Ramadan!!


Post a Comment

<< Home