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Jordan Deflation
The problem of deflation, a sustained fall in overall prices,
was complex and not readily apparent to the average consumer.
Prices were stable in 1986, and in 1987 the cost of living index
actually dropped, albeit by less than 0.5 percent. The greatest
drops were in housing, food, fuel, and utility costs. Although
consumers preferred deflation to the double-digit inflation of the
early 1980s, deflation had ominous implications for an economic
downturn. Because import costs rose during 1987, average domestic
prices fell significantly, as much as 10 percent for some goods and
services. Total prices declined by 0.5 percent. Insofar as growth
in domestic demand had contributed some 60 percent of manufacturing
growth, business and industry began to suffer. Companies that had
incurred dinar-denominated debts at high interest rates, expecting
to repay their loans with inflated currency, were expected to
suffer even more. The low interest rates that disinflation, a
reduction in inflation, implied could spark even greater capital
flight and lower remittances. Increased government spending would
revive aggregate demand but would entail more external borrowing.
Data as of December 1989
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