The Iranian economy is standing at one of the most turbulent and critical points in its modern history. Chronic structural inflation, the shock of war, deep recession, and damage to key production infrastructure have placed such heavy pressure on people’s lives that even a possible full agreement and the injection of financial resources may not be enough to control Iran’s deep-rooted inflation crisis. Without structural reforms and major economic changes, Iran is moving quickly toward a dark future of hyperinflation.
Inflation and the Continuous Rise in Prices
Inflation is generally defined as the continuous and widespread rise in prices over a specific period. The most common way to measure inflation is through the Consumer Price Index (CPI), which tracks the prices of a basket of goods and services, including food, housing, transport, healthcare, and education.
Data from the Statistical Center of Iran shows that inflation was already rising even before the war began. However, official figures often differ sharply from market realities. The gap between actual market prices and government-mandated rates used in official calculations, along with changes made to the consumption basket, such as replacing expensive goods with cheaper and lower-quality alternatives to artificially lower inflation figures, has created serious errors and fluctuations in measuring the “real” inflation rate.
Current Situation and Future Factors Affecting Inflation
In general, inflation is caused by excessive liquidity growth combined with a decline in Gross Domestic Product (GDP). This reduces the production of goods and services, slows economic growth, and eventually lowers per capita income.
1.Demand-Pull Inflation
This happens when the government and the public spend more than the wealth and trade generated inside the country. When a government faces a budget deficit and does not have enough revenue, it turns to money printing and borrowing from the Central Bank. In its final report for January 2026, the Parliament Research Center estimated GDP growth at -0.4% and non-oil economic growth at -0.6%. The Central Bank estimated these figures even lower, at -0.8%.
Agriculture, industry, and mining have recorded zero or negative growth, while only the oil sector showed a 1% increase. The situation worsened after nationwide protests, followed by two months of “no war, no peace,” and nearly two months of military conflict, which severely weakened economic growth and per capita income. At the same time, damage to major and smaller industrial factories has delivered a heavy blow to national production.
On liquidity, the Central Bank’s report from late January 2026 showed a sharp 40.4% increase in liquidity by the end of November 2025 compared to the previous year. Assuming a steady monthly growth rate of 3%, liquidity is expected to reach a historic 17,666 trillion tomans by November 2026. If high-risk and high-tension conditions continue, the figures could become even more extreme.
2.Trade Balance and Foreign Exchange Earnings
Iran’s economy is also facing a drop in foreign exchange revenues. Customs reports for 2025 show that the country continued to face a trade deficit. Non-oil exports stood at $51.657 billion, while imports reached $58.016 billion. This means Iran not only failed to earn net foreign exchange income through international trade but also recorded a capital outflow of $6.359 billion.
It is important to note that the $51.657 billion in export revenue does not fully return to the country. Much of it exists only as accounting figures. Hossein Samsami, a member of the Parliamentary Commission, said that more than $83 billion in non-oil export earnings did not return to the country. This is an alarming figure for non-oil exports alone and does not include funds from oil sales handled by “trustees,” which reportedly involve another $8 billion to $17 billion annually that often remains unaccounted for.
In short, the weak export-to-import ratio and the failure to bring export earnings back into the country point to a collapse in government foreign exchange income, a widening budget deficit, more money printing to cover costs, and eventually, an inflationary explosion. Under the pressure of war, falling production, and a worsening trade balance, this situation is likely to become even more severe.
3.Increased Production Costs
Higher costs for raw materials, wages, energy, and foreign exchange directly raise the cost of producing goods and services. To protect their profit margins, companies pass these costs on to consumers, which further fuels inflation.
Since the war began on February 28, the ongoing maritime blockade and disruptions in the Strait of Hormuz have made the import of raw materials and spare parts extremely expensive. For instance, disruptions in livestock feed imports have created shortages, causing prices inside Iran to rise more than sixfold. This has pushed the price of a carton of eggs from 380,000 tomans before the war to over 600,000 tomans in less than two months.
4.Foreign Exchange Rates and Import Costs
In import-dependent economies, exchange rate volatility is one of the biggest drivers of inflation. When the national currency weakens, imported goods and production inputs become more expensive, leading to “imported inflation.”
The dollar rate rose from 85,000 tomans to more than 160,000 tomans in just nine months, reaching 185,000 tomans in the early hours of the military conflict. While government media currently reports the rate at around 150,000 tomans amid the internet blackout, the consecutive inflation spikes in February and March point to a historic collapse in the value of the national currency. Once markets fully reopen, this collapse is expected to appear in sharp rises in gold and foreign currency prices.
5.Inflationary Expectations
In times of economic and security instability, businesses and consumers raise prices or engage in panic buying to protect the value of their assets. One small example is the flashlight, a simple tool that, after warnings of power outages, has turned into a “luxury” item, with prices reaching up to 50 million tomans in the Iranian market.
6.Policy Errors and Strategic Mismanagement
Government policies such as price controls, unsustainable fiscal plans, and the removal of preferential exchange rates often act as short-term fixes that eventually lead to sudden inflationary shocks.
Recent examples include the removal of preferential exchange rates for medicine and permission to export 25 essential goods, from powdered milk to grains, during a wartime blockade. The internet blackout also carries a massive daily cost: around $37 million in direct losses and nearly $80 million in total direct and indirect losses. If this continues for two months, it would cause a devastating economic blow of $2 billion to $4 billion, deepening the recession and further driving inflation.
7.External Shocks (The War)
War acts like an “inflation bomb.” The cost of reconstruction, destruction of urban infrastructure, and repair of production lines requires huge funding. If this is financed through money printing, inflation worsens. If it is financed through taxes, it places unbearable pressure on production.
The government spokesperson has estimated the war’s damage to Iran’s economy at around $270 billion, nearly 60% of the country’s annual GDP. This alone can create deep, long-term, and persistent inflation.
8.Structural Economic Issues
Corruption, rent-seeking, and monopolies act like chronic diseases that weaken the economy from within. By draining foreign exchange resources and blocking the natural flow of liquidity and wealth, these structural problems keep inflation high. This deep and multi-layered corruption has spread through levels of power and remains one of the biggest barriers to any economic recovery.
Inflation Rates in Farvardin and the Coming Months
According to the Statistical Center of Iran, point-to-point inflation stood at 68.1% in February 2026 and rose to 71.8% in March 2026. Since each of the inflation-driving factors discussed in this report has intensified over the past month, the inflation figure announced by the Statistical Center for April 2026 is expected to rise further, a reality Iranians already see in their daily bills and feel in their lives.
Looking ahead, three scenarios can be considered:
1.The Pessimistic Scenario:
If the war continues and tensions escalate, government foreign exchange revenues decline, and financial resources remain limited, the government will become more dependent on inflation-generating financing. Combined with infrastructure damage, this could push the economy toward dollarization and, in the worst case, inflation above 100%, eventually leading to hyperinflation.
2.The Median Scenario:
This scenario assumes the continuation of the “no war, no peace” atmosphere. In this situation, the economy remains stuck in uncertainty and instability, leading to deeper recession, higher unemployment, weaker economic growth, and fresh inflation jumps. In some cases, this can be even more damaging and destructive than war itself. Iran’s economic experience after the 12-day war partly showed the impact of this “no war, no peace” condition.
3.The Highly Optimistic Scenario:
Even if a full agreement is reached and all sanctions are lifted, major obstacles will still remain in the way of economic recovery, lower inflation, and a stronger national currency.
While the release of around $100 billion in Iran’s frozen assets is one of the main expected benefits of a full agreement, these resources may not be liquid or immediately accessible. A large part of these assets is held abroad as project collateral, deposits with oil companies, or financial securities. Also, when compared with the official estimate of $270 billion in war-related economic damage, the release of $100 billion can, at best, cover only about one-third of the losses.
In addition, trade relations with neighboring countries, especially the UAE, which played a key role in exchange rate stability, imports, exports, and oil sales, have been disrupted after the Islamic Republic’s drone attacks on those countries. Restoring these ties to pre-war levels appears difficult in the short term.
As a result, bringing inflation below 30% and stabilizing the exchange rate in the 110,000 to 115,000 toman range seems overly ambitious, even if peace is achieved. While the short-term psychological impact of an agreement may temporarily reduce prices in the market, the real path of inflation and the value of the national currency will be determined by deeper economic and financial factors in the medium term. Only long-term structural reforms, along with minimum annual economic growth of 1.5% for more than six years, could potentially help the economy reach the 8% growth target set in the Seventh Development Plan.
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