With the release of inflation statistics for October, it has become clear that Iran’s point-to-point inflation rate remains high, hovering around 31.6% compared to the same period last year. This figure exceeds the government’s 2024 target of 25%, signaling continued economic challenges that undermine officials’ ambitions for inflation control.
Earlier this year, in April, inflation dipped to 31%, marking its lowest point in 45 months and giving some hope that the government could bring inflation down to the 25% range. However, subsequent data shows a resurgence in inflation, with the latest figures indicating an upward trend compared to April levels.
While monthly inflation had been on a steady decline since June, it saw an unexpected rise in October, presenting a new hurdle for officials in the second half of the year. This inflationary spike comes just as parliament prepares to review the 2025 budget. The rising inflation complicates plans for a promised 20% increase in employee salaries, highlighting the dissonance between the government’s plans and economic realities.
Adding to the strain is the persistent budget deficit and rising exchange rate, both of which cast doubt on the government’s ability to control and reduce inflation in 2025. The administration, which has committed to achieving the targets outlined in its 7th Development Plan, faces considerable challenges. These include ambitious goals for 8% economic growth and reducing inflation to single digits — targets that appear increasingly unattainable under current conditions.
The 2025 budget projection forecasts a budget deficit that could reach 800 trillion tomans, likely necessitating the sale of bonds and borrowing from the central bank — measures that would further exacerbate inflation. Experts warn that bond issuance, which has already seen a 175% increase, will require even higher interest rates to attract funding, potentially straining the capital market.
One of the most significant changes proposed in the 2025 budget is a shift to a floating exchange rate for basic commodities, moving away from the current rate of 31,000 tomans per euro. This decision could drive inflationary pressure further, as estimates suggest the exchange rate may climb above 50,000 tomans. Such an increase would directly impact the prices of essential goods, placing an additional burden on the most vulnerable segments of society.
While the government has predicted a 41% rise in oil revenues, the 20% gap between this projected increase and the exchange rate growth points to a potential decline in real oil revenues for the next fiscal year. The government’s substantial borrowing plan — estimated at 10 billion euros from the National Development Fund — is yet another factor likely to drive up inflation.
The budget proposal also includes a 40% increase in tax revenues, which could strain the business and manufacturing sectors if insufficient tax breaks are provided. A higher tax burden risks overshadowing improvements in the business climate and could lead to declines in production and employment.
With public budget growth reaching 130%, the government shows little inclination to curb spending or reduce its operational footprint. Instead of addressing the budget deficit through structural reforms or cost-cutting, the 2025 budget sees an increase in public spending from 2.8 trillion tomans to 6.4 trillion tomans. These policies threaten to entrench inflation and economic stagnation. Over the past three years, inflation has averaged 45%, and without significant changes, Iran is unlikely to approach the single-digit inflation goal set out in the 7th Development Plan. The year ahead is thus likely to bring continued economic hardship for Iranian households.
Forecasts suggest that Iran’s economy will face prolonged challenges, including rising inflation, ongoing stagnation in production, and volatility in financial markets. The 2025 budget paints a troubling picture of Iran’s economic landscape, with government spending growth and the resultant pressure on low-income groups posing formidable obstacles to achieving the country’s economic objectives. Without substantial reforms, Iran’s economy may face mounting difficulties, undermining efforts at development and inflation reduction.
