In addition to wheat, the cost of propane has gone up as well. It has almost doubled in the past month. Once again, people are blaming “greedy” distributers. I’ll have to do some digging, but I’m willing to bet that it is the same forces at work here as there is in the wheat market. The op-ed in the paper says that the government should subsidize the price of propane, through Ramadan if not indefinitely. The current price is the equivalent of $3.50 a tank. I’m guessing that it is already subsidized. So the problem is either that distributers are colluding and driving the price up artificially, or maybe, just maybe there is enough increased demand during ramadan that the gas is now worth more and this is the actual market clearing price.
Another interesting thought is that the government gave all government employees an extra month’s salary as a bonus for ramadan. If you add money to the money supply, you devalue it, it’s the same thing as inflation. I didn’t think that this would make much of a difference, but many people that have jobs here have them through the government. Maybe there was more money injected into the system than I thought? One other thing that could have happened is that businesses could have raised their prices because they knew that there would be more money circulating in the system. This is a well know macro economic issue, businesses will raise prices as they think their cliental can pay more. We don’t see this too much in the US anymore, but it still takes place in places where the governments announce across the board pay raises. Usually, the government is trying to combat the effects of inflation by paying people more in order to afford things. Of course the combination of adding more money to the supply and the news that there will be more money circulating just drives prices up again. It’s a vicious circle…