Lebanese consumers of food products, whether basic or processed, are faced with the arbitrary pricing policies of food distributors and supermarkets, with a total absence of governmental Intervention and control.



In most countries, the consumer price index (CPI) is measured in relative values, and hence includes any mild volatility in the local currency depreciation. This is not the case in Lebanon, where the CPI, and in particular the food price index, is calculated based on the daily market price of the food basket.



With the absence of any serious governmental control on the super markets as well as the food distribution chain as a whole, the food market place is experiencing a pricing Ratchet effect. The Price Ratchet Effect occurs when prices decrease is absent or very slow after an inflationary pressure is removed. In Lebanon, the escalation in prices tends to self-perpetuate even when inflation rates or LBP depreciation rates decrease.
The Ratchet effect is caused by the following:
· Lack of governmental control, particularly by the Ministry of Economy and Trade: supermarkets and food distributors are not bound by any pricing policy that the government is supposed to impose, especially in such times of crisis.

· Insufficient locally produced food as substitute to imports. The increased prices are mainly due to the fact most of the foods consumed in Lebanon is imported rather than locally produced.



· Absence of bank credit. Food distributors’ current modus operandi is to collect their receivables at proceeds on a daily basis (mostly in LBP) and exchange it for US$ to pay for their next imports. Importers are exerting a pulling force on the LBP/US$ exchange rate and hence are forced to price their goods at their own expectation of the future value of the exchange rate, hence creating an upwards and irreversible spiraling inflationary spree, which determines the price Ratchet.



· Depreciation of the local currency. Following the trend of the local currency over the past three years, one can hardly expect the stabilization of the US$/LBP exchange rate. This depreciation outlook exacerbates the inflation rates in the market, especially those related to food supplies.



· It has been observed that the retail outlets exaggerate the exchange rate in order to smooth out the price variations at least throughout the day. For example, a super market might price its goods at an exchange rate of LBP100,000/US$ even if the opening rate is at LBP94,000/US$, so as to cater for any abrupt changes during the day. This assumed future exchange rate is never revised the next day but rather is either kept at the same level or increased.



· Food insecurity in Lebanon is mainly caused by price inflation as a consequence of a depreciated local currency. The lack of governmental plans and social support, as well as the absence of any remedial actions to slow down the upwards inflationary spiral is increasing the number of poor people in Lebanon, exposing them to the cruelty of food insecurity.