The Inflation Trend in Jordan For the Past 20 Years
Figure 1: Jordan inflation rate between 1980 and 2018 (MacroTrends, 2020)
Inflation is calculated as the percentage of the consumer price index from one year to another. In the previous 20 years, Jordan’s inflation rate has been fluctuating based on country’s economy. Its inflation rate in 1999 was 0.61% as compared to 3.09% inflation in 1998, which was a -2.49% decline (The Global Economy, 2020). In the year 2000, the inflation rate in the country was 0.67%, which was a 0.06% increase, after which the inflation rate grew to 1.77%, a 1.11% increase (Figure 1). From 2001 to 2007, the inflation rate in the country moved from 1.77%, 1.83%, 1.63%, 3.36%, 3.49% to 6.25% (The Global Economy, 2020). However, in 2008, during the global economic recession, the inflation rate in the country jumped to 13.97%, which was a 9.23 % increase, after which it dropped to -0.74% and stood at a 14.71% decline (MacroTrends, 2020). In 2018, the inflation rate was 4.46 %, a 1.14% increase from 2017. In 2019, the inflation rate dropped to 2.02%.
Fluctuations in The Rate of Inflation
In the past twenty years, there have been fluctuations in the inflation rate of Jordan, an issue which has been attributed to several factors, both local and global. An example in 2008 was the economic challenge, which was experienced by many countries around the world, where Jordan was also affected. This was a result of the global financial crises, which led to the economic recession, a factor that resulted in a high rise on the rate of inflation (MacroTrends, 2020). Another factor that may have led to the inflation rates is the aggregate demand, where the economy may have grown too fast. Other factors that may have contributed include the changes in the global oil prices. The variations are significant determinants of the growth of the economy of the nation (MacroTrends, 2020). The money supply and credit positively affect Jordan inflation rate over the years. On the other hand, the output gap and interest rates have had a negative effect on Jordan’s economy and inflation rate. It can, therefore, be deduced that inflation in Jordan is not a monetary phenomenon.
The Policy Recommendations for The Inflation Rate in Jordan
There is a need for the nation’s government to come up with both financial and monetary policies that can help in stabilizing the nation’s economy and help in dealing with the fluctuating interest rates. The country can also use macrocosmic stabilization, more so in times of crisis, as a way of restoring the exchange rate stability. It also needs to maintain prudent policies which should be supported by marked development in the monetary policy framework (The World Bank, 2017). This should include having monetary policy instruments, which are engaged by the central bank independence. Along with adjusting the monetary policy, the Central Bank of Jordan needs to respond to domestic inflation and the output gap. It also ought to determine the spread between the local and United States interest rates (The World Bank, 2017). Additionally, the Jordan government needs to develop policies that protect the small and medium enterprises, which are very vital for the economic growth of the country. SMEs play a very crucial in reducing the challenge, such as unemployment, and contribute to the reduction of the nation’s inflation rate.