By Kayhan Life Staff
The rate of inflation in Iran reached 89.8 percent in the month of September, according to a report by the Statistical Center of Iran. That represents the highest year-on-year inflation rate recorded since World War II.
Economic experts blame the budget deficit and the government’s ways of financing it as being among the main drivers of inflation in Iran. They argue that even without the recent war, inflation would have continued to climb.
Meanwhile, Abdolnaser Hemmati, Governor of the Central Bank of the Islamic Republic of Iran, said inflation had declined in September. A Central Bank report on September prices put year-on-year inflation at 83.8 percent, annual inflation at 68.4 percent, and monthly inflation at 3.9 percent.
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According to the SCI report, the Consumer Price Index (CPI) for households nationwide reached 729.8 in September, up 4.2 percent from the previous month. In other words, between Aug. 23 and Sept. 23, prices nationwide increased by 4.2 percent in just four weeks.
The SCI report showed that eight categories — including food and beverages, tobacco, household goods and services, transportation, communications, recreation and culture, hotels and restaurants, and miscellaneous goods and services — recorded inflation rates above 100 percent in September. Year-on-year food inflation reached approximately 121 percent during the month.
According to the SCI, year-on-year inflation for rural households reached 108.9 percent in September. This means that rural residents, on average, paid more than twice as much for the same basket of goods and services as they did a year earlier.
The report also showed that, in terms of monthly inflation, the “miscellaneous goods and services” category recorded the highest rate, at 8.5 percent, contributing 0.4 percentage points to overall monthly inflation.
It was followed by “transportation,” with monthly inflation of 7.9 percent and a 0.66 percentage-point contribution.
The “vegetables (vegetables and legumes)” category recorded monthly inflation of 5.7 percent, contributing 0.28 percentage points to monthly inflation in September.
Economists explain that even a slight decline in inflation under current economic conditions in Iran — where households are facing a severe loss of purchasing power and widespread poverty — would not necessarily indicate an improvement in living standards.
Rather, they argue, it could reflect falling demand, as citizens become increasingly unable to afford goods and services. They compare the situation with that of Afghanistan, where inflation has remained relatively low despite severe economic stagnation, widespread poverty, and continuing price increases.
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The sharp recent rise in the dollar exchange rate — often described as the “thermometer” of the economy — points to continued turbulence.
At the same time as the inflation report was released, the exchange rate in Iran’s currency market reached a record, approaching 2,600,000 rials per U.S. dollar.
Media outlets close to security institutions and the government have sought to portray the “enemy” and the “war” as the main causes of the crisis.
The Tehran Prosecutor’s Office also announced on Sept. 30 that judicial officers had been instructed to use intelligence and field investigations as well as social-media checks to identify people allegedly contributing to fluctuations in the foreign-exchange market and refer them to the judicial authorities.
The Tehran Prosecutor’s Office claimed that part of the increase in foreign-exchange prices was driven by the activities of certain market participants, as well as online pages and channels that were disrupting the market by “exploiting the current circumstances.”
Officials must report the results of their actions to the Tehran Prosecutor’s Office daily. Government-affiliated media have also reported the arrest of several foreign-exchange market participants in recent days.
Meanwhile, the Central Bank recently announced that it was “planning to supply $2 billion in banknotes” to the market. It said the sale of this foreign currency had already begun and that, in an initial phase, $1 billion would be supplied through selected bank branches and bank-affiliated exchange offices across the country.
The dollar has nonetheless continued to soar, gaining 200,000 rials in just two days. Economists say the rial will continue to weaken.
Kambiz Afshari, a foreign-exchange market analyst, told the Tehran-based Tejarat News website that, given the inflationary trends in Iran’s economy, the dollar’s market price should be higher than its current level. At the same time, he noted that severe stagnation in production and transactions across various markets, along with declining trade volumes, had reduced actual demand for foreign currency.
“There is still room for the dollar’s price to increase in the coming months,” Afshari said. He warned that if current conditions persisted until late October or early November, the market could again move toward higher prices, with the dollar potentially reaching the 2,700,000-rial range.
Economists consider the government’s role in the collapsing currency as being greater than that of the U.S.-Iran war and U.S. economic pressures on the Islamic Republic.
Economist Mehdi Pazouki, speaking to the Tehran-based Fararu news website, emphasized that even without the war, Iran’s economy would still have faced a substantial budget deficit.
“Even if the war had not happened, the government’s budget deficit would have continued,” he said. “Even before the war, officials were talking about very large budget deficits, with figures ranging from around 400 trillion tomans ($1.6 billion) to as much as 1,500 trillion tomans ($5.9 billion). The budget deficit is not an issue that was created solely by the outbreak of the war; it had already been one of Iran’s major economic problems.”
Pazouki said one of the most important causes of inflation in Iran is the accelerating growth of liquidity. Injecting unbacked money into the economy increases inflation and ultimately reduces people’s purchasing power. Under such circumstances, he argued, raising wages has a limited effect.
If the economy’s real resources do not support wage increases, they can instead add to inflationary pressure and further weaken the rial. The decline in purchasing power, Pazouki said, cannot be resolved simply by raising wages.
At a time when people are facing rising living costs and declining purchasing power, he added, economic and political decisions must take greater account of people’s livelihoods. The effects of inflation and a depreciating currency could not be ignored.
Pazouki also warned that if additional expenditures are not brought under control and the budget deficit continues, the resulting pressure will ultimately translate into still higher inflation and a further decline in the value of the national currency.
