Lebanon has witnessed a significant drop in inflation, falling to double digits for the first time in almost four years. This shift coincides with a growing trend among local businesses to price their products in U.S. dollars rather than the Lebanese pound.

Since the financial collapse in 2020, sparked by Lebanon's default on $30 billion in international bonds, the country's economy has been in dire straits. This collapse severely impacted many people's savings and caused a sharp decline in the value of the Lebanese pound. To stabilize their businesses, many companies in Lebanon have opted to price their goods in dollars, a practice now widespread across various sectors, including supermarkets and restaurants.

According to data from Lebanon’s Central Administration of Statistics, this move towards dollarization has contributed to a decrease in the inflation rate. Last month, inflation stood at 70.4%, down from 123% in February. This marks a significant improvement from the staggering 269% inflation rate recorded in April 2023. Despite this positive development, the majority of the population, which still earns income in Lebanese pounds, continues to face challenges due to limited access to the dollar-based economy.

While the stabilization of the Lebanese pound in the black market has also helped curb inflation, the country's economic situation remains precarious. Recent regional conflicts, particularly tensions between Hezbollah and Israeli forces, pose additional threats to Lebanon's fragile economy. These conflicts risk disrupting the tourism sector, which had shown signs of recovery before the onset of hostilities.

Lebanon's financial system experienced a catastrophic breakdown in 2019, characterized by unsustainable public debt and widespread corruption. This led to restricted access to bank deposits and widespread public unrest, culminating in the "October Revolution" protests. Billions of dollars in deposits remain frozen to this day.

Although Lebanon's government and central bank declared bankruptcy in 2022, the private sector has shown remarkable resilience. Private consumption has been supported by remittances and tourism, with modest growth anticipated in 2023, the first since 2018. However, projections were later revised downwards due to the economic fallout from conflicts involving Hezbollah and Hamas.

In late March, frustrations reached a boiling point in Beirut as depositors protested outside the Central Bank, demanding access to their frozen savings. Many Lebanese have come to terms with the possibility that their savings may never be fully recovered. Meanwhile, everyday financial transactions have increasingly shifted to cash, with remittance services and currency exchanges becoming more prevalent.

The devaluation of the currency has given rise to a unique situation in Lebanon's financial landscape, with three currencies now in circulation: the Lebanese pound, U.S. dollars, and "lollars" – dollars trapped in bank accounts that can only be withdrawn at a fraction of their original value.

Despite these challenges, Lebanon's diaspora continues to play a vital role, sending billions in remittances that constitute a significant portion of the country's GDP. This influx of funds has helped buffer the economy against the worst effects of the ongoing financial turmoil.