'It's like American prices': Lebanon's cost of living soars as dollar replaces pound

Stylish young workers sip their coffee in the leafy courtyard, quietly toiling on their latest projects, while groups of young people chat quietly so as not to disturb the studious ambience. This scene could easily take place in a trendy co-working cafe in New York. The menu and, most definitely, the prices reflect those of western capitals. An avocado halloumi toast costs $8, a matcha bowl is $8 while an iced latte coffee is $4. But this is not Brooklyn; this is Mar Mikhael, a popular street in Beirut, Lebanon's capital. “It's like American prices,” a foreigner sighs while reading the menu, slowly coming to the realisation that Lebanon, a country embroiled in a steep economic crisis , where 44 per cent of the population lives in poverty is not a cheap country. Lebanon – a lower-middle income country according to the World Bank, which reclassified the small Mediterranean nation down from upper middle-income status in July 2022 – has been seized by a dollar frenzy, as the country initiated a de facto dollarisation of its economy over a year ago. Now, most shops, restaurants and service providers are asking customers to pay in US currency due to the depreciation of the Lebanese pound – and the bill is hefty. This is not confined to high-end areas of the capital, such as Mar Mikhael. In the working-class neighbourhood of Ain El Remmaneh, Rosine Abou Nassif, 72, said prices were now even higher than they were before the economic crisis that shook the country in 2019. “We cannot keep up,” she said. The sharp rise is reflected in the Consumer Price Index of April, published by the state statistics agency on Monday, which shows an annual increase of 70.4 per cent. These were the first figures providing an indication of yearly price variation in the country since the Lebanese pound stopped its collapse at the end of March 2023, stabilising at its current level of 89,500 lira to the dollar. Until now, the triple-digit inflation recorded by the country was mostly driven by the depreciation of its currency, which lost 95 per cent of its value against the dollar since the onset of the crisis. But the latest figures show that if the stabilisation of the pound has contributed to slower inflation, it has not stopped it altogether. “Prices continue to rise despite a stable exchange rate,” Lebanese economist Kamal Hamdan told The National . Food prices have risen by 33.5 per cent since last year, while global inflation was about 7 per cent in 2023, according to the International Monetary Fund. However, the pound has remained stable. “This can be explained by the prevalence of oligopolies in Lebanese market structure, coupled with the absence of robust public interventions and regulatory oversight,” said Mr Hamdan, who extensively researched the topic. Oligopolies are market structures characterised by a small number of players, enabling them to agree on overvalued prices to maximise their profits without facing penalties from the market due to a lack of competition. “In dollar terms, prices are reverting to pre-crisis levels and, in some cases, surpassing them, according to the price elasticity,” said Mr Hamdan. However, observers said that the latest CPI data should be approached with a pinch of salt when used as an indicator for inflation in dollars in the country. This is because, Mr Hamdan said, some goods and services priced in Lebanese pounds, such as tuition fees which show a 589.23 per cent increase compared with April last year, were still adjusting to the market rate. Lebanon was not always this expensive. When the local currency began its downwards spiral in 2019, it became affordable for those earning in dollars. “I used to spend only $100 a month; everything was cheap. I managed to save a lot during that period,” said Nour Nahas, 29, who works in the development sector. “I officially spent all my savings this year; it's crazy how rapidly food and services have become expensive. You never know whenever there's a new rule in the country that says you have to pay a new tax.” Since 2022, cash-strapped Lebanon has gradually raised taxes, fees and customs duties in a country that relies heavily on imports. These measures aim to bolster state revenue, which has been slashed after years of crisis as revenue was primarily denominated in the devalued national currency. “Prices are adjusting. It was a necessary move to increase public investment, and improve public servant salaries,” Siham Rizkallah, a professor of economics at Saint Joseph University, told The National. But for the Lebanese, this is a bitter pill to swallow, especially as the quality of services is barely improving, forcing them to resort to expensive private services. “We're paying twice for everything,” Ms Nahas said. State power company Electricite du Liban (EDL), for instance, has increased its tariffs and aligned its prices with the dollar rate. However, it is only providing four hours of electricity, leaving Lebanese reliant on privately owned generators, controlled by a “generator mafia”. “I was paying $300 per month for the generator in my previous flat for only 17 hours of electricity,” Ms Nahas said. Still, Ms Nahas is among the lucky ones, her income being in dollars. For many in the public sector, the situation is dire. Despite the exchange rate rising by a factor of 60, compared with pre-crisis levels, administrative salaries, for instance, have only increased ninefold. Ms Abou Nassif said that her husband's pension, as a retired army officer, was now only $190, down from $800 before the crisis. “I need $1,000 per month, just for the bare minimum, which includes at least $300 for medication for both of us,” she said. She said she relies on remittances from her family, which made up 37.8 per cent of Lebanon’s gross domestic product in 2022, according to UN Development Programme. If a handful of the well-off are able to drive consumption, filling bars and restaurants, stark inequalities remain. According to a World Bank report published this month, Lebanon's poverty gap has risen to 9.4 per cent in 2022, from 3 per cent in 2012, while the proportion of poor nationals has tripled to 33 per cent from a decade ago. For Prof Rizkallah, the problem is not dollarisation but the authorities' slow pace in undertaking reforms, five years into the crisis. “Prices are now returning to a normal level,” she said, stressing that the lifting of subsidies, which had kept prices artificially low at a very high cost, also played a role. “But this is suffocating for the poorest segments of the population. “The sooner we decide on an exchange rate regime, the sooner we limit the damage and can mitigate the impact on the poorest. The longer we wait, the more significant the social consequences become.”

'It's like American prices': Lebanon's cost of living soars as dollar replaces pound

The Consumer Price Index, published by the state statistics agency, rose by an annualised 70.4% last month