When Indicators Fail to Narrate the Palestinian Economy

Author: Lama Awad

There are numbers that help in understanding reality, and others that may seem statistically accurate, but become misleading when read out of context. In economics, the arithmetic mean can be one of the most misleading indicators if stripped of its context. This is exactly what the infographic published by the Arab Center for Research and Policy Studies reveals, based on data from the Trading Economics platform for April 2026 regarding inflation rates in the region. While the Palestinian figure appears close to the inflation levels of several Arab economies, the truth lies in the small note beneath the graph, which the reader may quickly overlook: 

"The rate in Palestine reflects a price decline in the Gaza Strip by 42.84% compared to an increase in the West Bank by 3.64%." In this short sentence, two economies are hiding behind one, two markets instead of one, and two contrasting realities linked by a single number. 

The national inflation rate is a composite indicator that implicitly assumes the components of the economy move in one direction, or at least are subject to similar conditions. However, the Palestinian situation breaks this assumption; the indicator combines two economies, each subjected to a different shock in nature, causes, and consequences, making the arithmetic mean less capable of representing real economic reality. How can a single national indicator describe an economy where part of the population lives under a devastating war leading to market collapse, while the other part continuously faces rising living costs due to restrictions and closures and the disruption of economic activity? Here, the real question becomes not how high inflation has reached, but what does inflation mean in the Palestinian context?

The data reveals that Palestine represents an exceptional case among regional countries, not because of the inflation level itself, but because of the nature of the factors shaping this indicator. In most Arab economies, inflation reflects changes in monetary policy, energy prices, global food prices, or local demand levels, factors that governments and central banks can influence through some economic policy tools. In Palestine, however, inflation has become a direct reflection of the geopolitical reality, such that economic variables alone no longer determine price movements; rather war, occupation, closures, supply chain disruptions, and restrictions on the movement of labor and goods have become more influential factors than traditional economic tools.

The specificity of the Palestinian situation also intensifies because the economy operates in an environment suffering from limited sovereignty over border crossings, borders, and resources, which reduces the margin for intervention to address price imbalances compared to what is available in other countries. When the movement of goods is subject to external constraints, any security or political disturbance can quickly turn into a supply crisis, directly reflected in price levels and production costs.

Thus, the price decline in the Gaza Strip should not be interpreted as an indicator of economic improvement or increased welfare for the population, but rather as a result of the collapse of economic activity, decreasing purchasing power, destroying large parts of markets, and declining volume of commercial transactions. Economies entering phases of severe contraction often experience price declines due to the disappearance of demand, not due to an abundance of goods or improved production. Therefore, reading this decline in isolation from the humanitarian and economic context can lead to misleading conclusions. 

Moreover, the very concept of price loses part of its significance in prolonged war conditions; the availability of goods, accessibility, and the stability of distribution channels become factors just as important as the announced price. Prices for some goods may fall amid declining demand, while other basic needs remain scarce or difficult to access, making traditional indicators less capable of reflecting the true level of economic welfare. 

In contrast, the price increase in the West Bank reflects a different economic reality characterized by rising transportation costs, disruptions in goods movement, tightening of movement restrictions, declining local production, and limited access for laborers to their workplaces, which have raised the cost of goods and services even amid slowing economic activity. Thus, the West Bank is experiencing what is known economically as "cost-push inflation," where prices rise due to increased production and distribution costs, not as a result of rising demand.

This type of inflation is difficult to contain with traditional monetary tools, as its roots are linked to increased production costs and supply chain disruptions, making its management more connected to easing restrictions on the movement of people and goods, improving trade fluidity, and supporting the capacity of establishments to continue production. The impact of this type of inflation is not limited to rising prices; it extends to declining purchasing power of families and increasing pressures on small businesses. When costs rise continuously while economic activity slows down, the private sector's ability to expand or create new job opportunities becomes more limited, which gradually reflects on economic growth and employment levels.

This paradox leads to a more profound conclusion that the national inflation indicator is no longer sufficient to describe the Palestinian economy. The unified figure conceals a growing gap between two economies each experiencing a different type of shock; one economy in Gaza suffering from widespread collapse of production and markets, while the economy in the West Bank faces inflationary pressures resulting from structural constraints and rising operational costs. Between these two realities, the arithmetic mean becomes less capable of expressing the suffering of the population or explaining the ongoing economic transformations.

Additionally, reliance solely on the national average may result in less accurate public policies, as the appropriate tools for addressing economic contraction differ fundamentally from those needed to deal with inflation resulting from supply-side bottlenecks. The issue in Gaza is linked to reactivating economic activity and restoring market functioning, whereas the West Bank requires measures aimed at reducing production costs, improving trade flow, and supporting continuity of economic activities. Therefore, accurately diagnosing the crisis becomes a prerequisite for designing more effective responses.

The current phase calls for reconsidering the tools used to read Palestinian economic indicators. Instead of merely settling for the inflation average, there is a pressing need to analyze indicators at a geographical level and link them with indicators of income, unemployment, poverty, food security, and market continuity, so that public policies reflect the true reality of citizens, not just the statistical average that may appear stable while concealing two entirely different economic crises.

Perhaps the most important lesson that this situation offers is that economic indicators must not be read in isolation from the context in which they are produced. Numbers remain necessary tools for understanding reality, but they can become misleading if not interpreted in light of the political, social, and institutional circumstances that shape them. In the Palestinian case, the importance of the inflation indicator lies not only in its numerical value but also in its ability to reveal the profound changes that have affected the structure of the Palestinian economy in recent times.

The current phase necessitates a transition from relying solely on broad indicators to constructing a composite economic indicator dashboard that combines price developments, real income, households' purchasing power, unemployment levels, food security, economic activity continuity, and geographical disparities between the West Bank and Gaza Strip. Together, these indicators will be better able to explain reality than any single figure might. 

The issue is not the inflation value itself but rather the limitations of the indicator measuring it. When one economy facing catastrophic contraction is combined with an economy experiencing inflation stemming from supply bottlenecks into a single number, the arithmetic mean provides an incomplete description of reality. Thus, developing tools to read the Palestinian economy has become essential to formulate public policies that are more precise, just, and aligned with reality.