Can Iran Survive Record Inflation?

One of the most powerful slogans during the campaign for the 2017 presidential election was “There is no going back!” But for some time now this campaign slogan has turned into a joke, and a painful reminder of the hopes of two years ago — when everybody believed that the relative success President Rouhani had in stabilizing the economy during his first term would bear fruit in his second.

Now, not even two years on from the election, Iran has not only gone back into recession, but the levels of recession and inflation are approaching those endured under President Ahmadinejad, and they might even surpass them. Now the record inflation and high prices are not only felt by the people, but are also showing themselves in official statistics and indices.

On February 20, the Statistical Center of Iran published its report [Persian PDF] on consumer prices for the Iranian calendar month of Bahman, 1397 (January 21-February 19, 2019). The report shows that, compared to the same month last year, the average inflation in all areas has passed 42 percent. This number almost exactly matches the record-breaking rate of inflation in the Iranian calendar month of Khordad 1392 (May 22-June 21, 2013), when Mahmoud Ahmadinejad was still the president of the Islamic Republic — and the same point in time in which Hassan Rouhani won the presidency after promising to return stability and dynamism to Iran’s economy. At the time, it was the highest inflation rate in the history of the Islamic Republic after the 1980-1988 war with Iraq. And the inflation coincided with an economic recession that threatened to bring down the whole economy.

After that particular month in 2013, perhaps because the economy was injected with hope, the situation improved. Unfortunately, the recent plunge back into inflation and recession is stronger, and the health of the Iranian economy is much lower than it was in 2012 and 2013. And there do not seem to be any signs of hope. 

The 42 percent inflation in 2013 proved to be the climax, but the shock the economy has recently been experiencing does not show signs of stopping or subsiding.   

 

Inflation in Food Prices

The Statistical Center’s report shows that inflation in food prices has reached 65 percent, one of the highest levels in the history of the Iranian economy — and it has reached this level within one year. For some items, such as some meat products, the inflation rate has shot up to over 92 percent. Even in the crisis-ridden years of the early 2010s inflation in food prices never exceeded 60 percent.  

Even if we disregard the fact that the recession has reduced job opportunities and sources of income, wages and salaries have not increased, making it very clear that buying power for food in Iran has fallen to half of what it used to be.

Only a few months ago, the Iranian Research Center published a study that revealed that even in the relatively stable economy of 2016, more than 13 million Iranians lived below the absolute poverty line and could not afford to buy enough food to feed their families. There can be no doubt that the recent inflation shock will result in an increase in the number of Iranians living in poverty, and that the current social and economic crises will get even worse.

However, inflation rates have fallen for clothing, furniture and for entertainment and culture — and are at 50, 74 and 68 percent respectively. In relative terms, it is good news that inflation is only at 23 percent when it comes to housing and energy costs. If the inflation in these two areas was the same as it is in the food sector, the total average inflation would have reached a three-digit figure.

On average, an Iranian household spends a little more than one-fourth of its income on food, while housing and energy consume 35 percent of a household’s income.

Fuel prices have not increased and the government plan to ration fuel has yet to be implemented. But it is possible that the inflation shock could extend to other sectors as well — from transportation and fuel to housing and other costs that affect household expenditure.

 

Rural and Urban Inflation and a Dim Future

The report by the Statistical Center of Iran shows that, as in previous months, rural inflation has outpaced urban inflation. The price index was 157 for urban households, while it was close to 163 for rural households. In other words, if in 2016 Iranian villagers needed 100 units of the currency to get by, today they need another 70 units to afford the same things. This shows that the inflation vortex is almost 10 percent deeper in rural areas than it is in cities. The annual rate of inflation in the period the report covered was 41.5 percent in urban areas and close to 47 percent in Iran’s rural areas.

The statistics show that the distribution of inflation is unequal among various deciles of the population. The difference of the monthly inflation rate between the first decile and the tenth decile was around 0.9 percent for food items and 1.2 percent for non-food items. There can be no doubt that there has been a decrease in how much low- and middle-income families can put on their dinner tables in recent months because, with inflation and the stagnation of salaries and wages on the one hand, and the sharp increase in the price of food on the other, it is simply more difficult for Iranian households to afford food.

All of this is taking place against a gloomy backdrop. It appears as though the future holds no promise for Iranian households — unlike in 2013. In fact, the recent Statistical Center report indicates that an increasingly worse crisis will threaten not only the economy but the whole political and social structure of Iran.

 

Related Coverage:

Poverty in Iran: An Introduction, February 5, 2019

Revealed: Absolute Poverty in Iran, December 7, 2018

Could a 20% Salary Increase Help State Employees?, December 5, 2018

Iran Rushing Toward 30 Percent Inflation, November 27, 2018

, October 30, 2018

Runaway Inflation and the Nationwide Trucker Strike, October 4, 2018

Families and Fishermen Lose Out as Prices Rise, October 1, 2018

Can Iran Survive the Inflation Hike?, August 29, 2018

Iranian Protesters: Death to High Prices!, July 31, 2018

Living on the Margins in Iran: An Introduction, July 11, 2018