Inflation Hits Iran’s Most Vulnerable as Crisis Continues

Toward the end of 2018, President Rouhani announced that there was “good news” regarding the country’s inflation crisis, stating that the government had successfully brought the situation under control [Persian link]. He said that inflation indices for the Iranian calendar month Aban (October 23–November 21, 2018) showed that prices were increasing at a more normal level and that the monthly inflation rate had fallen to 2.6 percent — after sitting at about 7.1 percent a month earlier. 

The Rouhani administration took the credit for the “return to normalcy,” and further “good news” came from the Statistical Center of Iran (SCI). It reported that, for the third consecutive month, the rate of inflation had fallen below three percent and that in the Iranian month of Dey (December 22-January 20) it fell to two percent — its lowest level in the past seven months Persian PDF].

But does an average of a two percent increase in prices in one month really mean that inflation is now under control?

 

How Reliable are the Statistics?

First, it is important to analyze the accuracy and validity of the data for inflation in Iran. 

For the last two months, the only source of inflation statistics has been the Statistical Center of Iran. Over late December and early January, the Central Bank of Iran published nothing about the price of consumer goods, although its last report covered that month [Persian link]. But the figures presented in that report did not correspond with those presented by the SCI. According to the Central Bank, the rate of inflation in the same month of Aban (late October until the third week in November) was 3.5 percent, and there were also reports that an inflation rate of more than four percent for the following Iranian calendar month, Azar (November 22-December 21). These numbers are very different from those presented by the SCI, which indicate that the rate of inflation for both months was 2.6 percent.

In other words, according to calculations by Central Bank’s statisticians, the average increase in consumer prices in one month was around one to 1.5 percent higher than what the SCI’s statisticians reported. The fact that these figures vary significantly for a single month raises serious questions about the validity of the official figures presented by the Statistical Center of Iran.

 

Two Percent Monthly Inflation: Return to “Stability”?

Putting aside doubts about the reliability of the SCI’s numbers and assuming that they are accurate and valid, another question remains: Does a two-percent monthly inflation rate signify movement toward stability?

If one compares this figure against other monthly inflation figures for the previous two years, the conclusion would be that such an increase in prices for one month cannot be viewed as a normal state of affairs. The highest monthly inflation rate in these periods, as reported by the SCI, was 1.4 percent for the months of Esfand in the Iranian calendar year of 1395 (February 19-March 20, 2017), Farvardin in 1396 (March 20-April 20, 2017) and Mehr in 1396 (September 23-October 22, 2017). Otherwise, changes in the inflation rate were less than one percent in most months, and, during Ordibehesht in 1396 (April 21-May 21, 2017) average consumer prices actually fell by 0.2 percent.

Even up until the month of Khordad (May 22-June 21, 2018), the inflation rate did not exceed 1.8 percent. Therefore, the fall in inflation to around two percent cannot be viewed as a sign of “normalcy.” If it can be assumed that each month, the average price of consumer goods increases by two percentage points, a shopping basket of goods that cost 100 tomans at the beginning of the year would cost 127 tomans by the end of the year. By no means can such a rate of inflation can be considered a sign of a stable economy — even for an economy like Iran’s.

Of course, when comparing this number to the inflation rates of five to seven percent in the summer of 2018, an inflation rate of two percentage points is definitely a positive sign, but there is absolutely no guarantee that in the coming months a new inflationary shock will not strike the Iranian economy. If credible predictions by Iranian and foreign economists about the likelihood of 20 to 30 percent inflation in the coming Iranian year (which begins on March 21) come true, this relative “good news" will be rendered meaningless and the effects of “government policies to control inflation” will disappear.

 

What do the Latest Figures Mean?

According to the SCI report published on January 21, the average price index for the most recent month, Dey, was close to 40 percent higher than the previous year, meaning that urban and rural households across Iran had to spend 40 percent more for the same shopping basket of goods, food and services as they did in the previous year.

More than one-fourth, or 26.6 percent, of the goods affected are food items that are, on average, 56 percent more expensive compared to the same month a year before, and cost three percent more than the preceding month. Among these items, the price of red and white meat, which together constitutes 11 percent of all food items, have increased by more than 75 percent, while the inflation rate for fresh and dried fruit rose by 76 percent. The lowest increase in the price of food items, only 29 percent, applied to bread and grains.

Prices of other items in the “family shopping basket” did not rise as sharply as food. According to the Statistical Center of Iran, housing and energy constitute 35 percent of this expenditure, and the prices for these two items rose by around 23 percent compared to last year, and only by one percent compared to the month before.

But, unlike the last inflation crisis in Iran in 2012 and 2013, this time inflation is affecting food prices disproportionately, making low-income groups more vulnerable to its effects. High-income households will pay a bigger share because their shopping baskets are more varied and more expensive, as is their leisure time. But low earners live under the threat of absolute poverty and its consequences, including malnutrition and starvation.

Under such conditions, not only do claims of “controlling inflation” fail to boost the morale of the people, they increase distrust in official statistics and government assertions.

The 2018 inflation shock has already inflicted significant political, social and human damage on Iran and its people. Although they are limited, the available statistics, regardless of any doubt about their accuracy and reliability, signal a continuation of inflation. An annual inflation rate of two percent can be borne by a stable and healthy economy, but a monthly inflation rate of two percent is not acceptable for a society that has to deal with one of the biggest economic crises in recent history. Iranian society is showing the strain, and signs that it can no longer bear such economic pressure.

 

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