Inflation to follow fuel prices in Jordan

To pave the way for its decision to raise fuel prices, the government told the public and the trading community that it will impose strict control over the markets. It warned businesses against exploiting the hiking of fuel prices to raise the prices of other commodities, whether or not their cost will be affected by hikes in fuel prices.

Such announcements by officials may indicate their good intentions, but in effect they cannot be implemented. The government is no more empowered by law to impose the price of various products in the free market. The maximum the authorities can do in this respect is to press shops and groceries to display their prices, for the consumers to see and compare, especially when it comes to vegetables and fruits.

Aside from determining the prices of products of companies with concessions, the government has no authority to determine other prices. Consequently, it cannot legally prevent prices from rising. The prices will be determined by the supply and demand mechanism. Therefore, the government should not say that it will “use the iron fist against all those who may exploit the citizens through unjust raising of prices”.

The wrong impression that prices must be raised because of fuel prices is given by yet another wrong assumption that prices are determined by cost only. Cost is, of course, an important indicator in pricing any product, simply because selling at lower than cost will result in losses that will eventually drive the seller to exit the market. The major determinant of prices, however, is the purchasing power of the public, and the volume of demand in relation to supply. If the market can tolerate a higher price for a given product, the seller will not wait for a hike in the fuel price to raise his/her prices as long as the demand will be enough to clear the quantity in the market.

MENAFN