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Red Light of Inflation Lit in Iran

Trading economics: The annual inflation rate in Iran rose to 22.5 percent in June 2020, the most since February, from 21.0 percent in the previous month.

These days, prices in the Iranian market are extremely fluid.

These momentary price increases are not limited to the dollar and gold, and now the prices of other commodities are not immune to daily fluctuations, from home appliances and mobile phones to snacks and foods. This has caused people to move uncertain in different markets to maintain the value of their assets.

Some are looking to buy melted gold and dollars, and some are looking for a home and a stock. Meanwhile, concerns about the rampant growth of prices have reached the Statistics Center of Iran. Ayyub Faramarzi, deputy director of economics and accounting at the Statistics Center, Ayoub Faramarzi said on a television program that the price of 475 goods was rising at an average inflation rate of 26 percent, putting Iran on the list of the world's four most inflation-prone countries.

He warned that in August, due to fluctuations in the prices of various goods, the monthly inflation rate reached 6.4 percent, and if this trend continues, this number could be very large by the end of the year. Economic managers, however, in response to news of inflation, sometimes making the coronavirus, sanctions, and sometimes many of the brokers in the government accountable for this situation. Their main reaction to the high price was the grammatical control of the prices, but all these years, Iranian citizens may rarely remember, buying goods at the grammatical rate or the so-called approved rate.

Economists, on the other hand, do not accept the excuses of government officials to control inflation and believe that not only the sanctioned countries but even the war-torn countries have been able to control inflation.

Hard years of living
Air conditioners at 60 million Tomans, Peugeot at 200 million Tomans, one Indian rice bag at 150,000 Tomans - these are the daily strange price increases. This comes as the Chairman of the Central Bank Abdul Nasser Hemmati said late last year that inflation would fall below 20 percent in 2020. Meanwhile, the regime’s President Hassan Rouhani and Economy Minister Farhad Dejpasand said that the coming year was a very difficult year.

 

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They cited falling oil sales, the outbreak of the coronavirus, and rising medical costs, while businesses are closed had lowered hopes for tax revenues. The regime’s government is now looking to the stock market to provide part of its budget deficit, but the maximum capital that can be obtained from this sector is about 50 to 60 trillion tomans, which is only one-ninth of the general budget, which is about 450 trillion Tomans. Capital is likely to be used to pay employees and retirees.

However, the budget deficit is still very high and, as has been the case for the past 50 years, the budget deficit is thought to be offset by the printing of money, resulting in inflation.

These solutions, however, are not principled and scientific solutions from the point of view of economists. They say that the liquidity gained from the stock market should be spent on production growth and development and that the government should not borrow from the central bank at all for the government budget deficit. At the same time, they believe that neither sanctions nor the coronavirus are good excuses for the rampant inflation.

Inflation rate of Iran's neighbors
At a time when Iran's inflation rate is in a critical state, this index has been controlled in neighboring countries and even war-torn countries. Last year, the inflation rate of many neighbors was negative and close to zero. According to Trending economist last year, the UAE inflation rate was negative 1.5 percent, Saudi Arabia negative 0.9 percent, Qatar 0.3 percent, Iraq 0.4 percent, and Afghanistan 1.7 percent. The highest inflation rates of Iran's neighbors were in Syria with 24.1 percent, Turkey with 15.3 percent, and Pakistan with 9.8 percent.

Inflation rates in the developed world fluctuate from less than one to 2.5 percent. Last year, inflation in Switzerland was 0.7 percent, France 1.1 percent, Germany 1.6 percent, the United States 1.8 percent, Britain 1.9 percent, and China 2.6 percent.

The inflation is unsolvable
In an interview with IRNA, economist Davood Souri said that as long as there is liquidity growth, it will not be practical to talk about curbing inflation, and if the government seeks to curb inflation, this control will not be possible without halting the growth of liquidity.

He also emphasizes that government revenues and expenditures do not go hand in hand, and if the government seeks to reduce inflation, it has no choice but to accept fiscal and monetary discipline and to refrain from any action to increase or intensify the phenomenon of increasing liquidity.

Economist Ali Saadvandi also told Tejarat News that even sanctions-stricken countries like Russia and war-torn countries like Iraq have been able to control inflation. He believes that instead of borrowing from the central bank, the government should borrow from the people by issuing bonds and then control the interest rates of the bonds and inflation through open market operations.

But financial market expert Kamran Nadri believes the work of the government and the central bank to control inflation is very difficult. He told Tasnim that comparing Iran with other countries in the coronavirus situation was incorrect.

Venezuela with 2431 percent, Zimbabwe with 766 percent, Sudan with 81.6 percent, Argentina with 44.4 percent recorded the highest inflation rates in the world. Iran, Angola, Haiti, and Liberia are other countries experiencing high inflation.

Iran's economy is facing the problem of inflation at the same time as the coronavirus crisis. In other countries, there was no problem of inflation.

In the case of Iran, the story is a bit different because Iran is facing high inflation on average. In this situation, it must be decided whether to consider an expansionary policy that can increase inflation, but to some extent helps production and prevents the decline in production or come to the conclusion that due to high inflation, production assistance should come from other sources.

All in all, high inflation is a chronic disease of the Iranian economy, and now, with the simultaneous imposition of sanctions and the coronavirus, the onslaught of unresolved economic problems has caused the regime’s government to face many unsolvable challenges, to solve the problem of hyperinflation.

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