Iran inflation rate: Annual figure may reach 50% providing bleak economic backdrop to growing political discord
Inflation in Iran is back to record levels, after the country finally looked to have recovered from the 2018 sanctions imposed by the US.
With a politically significant death inspiring weeks of protests, will crippling price rises push the country deeper into social and economic chaos, or will the Iran inflation rate begin to stabilise?
What is inflation and how is it measured in Iran?
Inflation measures the increase in the price of goods and services over a given period, typically 12 months.
The indicator tends to come from statisticians measuring price rises among a basket of goods and services, usually those most used by a typical household, to give an indicator of how much prices are increasing.
Most developing countries aim for a slow and stable 2% increase in prices per year, which is regarded as low enough to avoid a cost of living crisis but high enough to stimulate growth and encourage buying, in contrast to recession-inducing deflation.
In emerging economies, this target is typically higher, with Iran posting a 22% target, the Financial Tribune reported in 2020.
Inflation in Iran is measured through the Consumer Prices Index (CPI) and released by the Central Bank of Iran. Its figures aren’t as transparent as those released by statistics groups in other countries, but provide a decent picture of the direction of travel for prices in Iran.
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Iran inflation rate: Historical view
Iran’s inflation rate history shows a country familiar with soaring prices. CPI has regularly breached 40% in recent years, and in relatively good times after an initial dissolution of tensions with the US in 2015, the price growth was still above 10%.
But the inflation rate in Iran was kicked into overdrive in 2018 when the Trump administration reimposed sanctions on the country, hurting trade balances by weakening the Iranian rial (increasing import prices), and inhibiting the country’s ability to export goods and services.
Prices have continued to rise as geopolitical factors increase costs in vital industries like agriculture, while sanctions mean the country struggles to capitalise on rising energy prices.
Inflation exceeded 50% in July, with rent, medicine, restaurant food, as well as snack cakes and biscuits, enduring the highest price rises, Iran International reported.
State-run news organisation the Islamic Republic News Agency reported in October that Iran’s inflation rate dropped to 39.6% in September.
The country is now battling social unrest, in part thanks to rising prices making life increasingly difficult for Iranian residents, which increases the stakes for Iran’s government to get price rises under control.
What is driving inflation in Iran right now?
Most economies around the world have been feeling the heat from rising oil and natural gas prices, tied to unwinding supply chains and war between Russia and Ukraine, which has cut out supplies of energy from Russia.
But for Iran, an energy exporter, that should be a reason for optimism. While they have regulated in recent months, oil prices doubled at one point in the summer in response to Russia’s invasion of Ukraine, increasing profits for those holding oil.
Unfortunately for the country, Iran is under similar restrictions to Russia, with the US embargo imposed by the Trump administration in 2018 limiting Iran’s ability to export oil.
Talks to revive a 2015 nuclear pact brought in under the Obama administration have ended at impasses on several occasions, which would significantly improve Iran’s trading position, as well as its currency and some of the current upward pressure on prices.
Iran has managed to reap the benefits of rising oil prices and renewed demand for the country’s energy as an alternative to Russia.
"Due to the increase in oil exports and our new budget's currency conversion rate, we saw a 580% increase in the treasury's income from the export of oil and condensate in the first four months of this year," Economy Minister Ehsan Khandouzi told a news conference, as reported by Reuters.
A September 2022 working paper by the International Monetary Fund (IMF) highlighted underlying drivers of inflation in Iran, both internally and externally. Researchers wrote:
“Domestic factors, such as loose fiscal and monetary policies, have been positively associated with inflation.
“Large fiscal deficits and rapid liquidity growth were associated with high inflation particularly during the mid-2000s due to expansionary government policies, during intensified sanctions in the early and late 2010s, and recently due to the COVID-19 crisis.
“Negative real interest rates enabled by financial repression have likely added to inflationary pressures during intensified sanctions and the COVID-19 pandemic as well.”
The group said the rise in global oil and food prices since the beginning of 2021 and supply chain disruptions were also likely to have added to inflationary pressures.
The World Bank wrote in the Spring that while Iran’s economy had begun to recover as it adjusted to renewed sanctions, it was still subject to significant downside inflationary risks, adding:
“Soaring global food prices due to the war in Ukraine, if prolonged, could heavily impact crop and fertilizer supplies and raise food security risks. Further price increases would add to Iran’s import bill and put more pressure on the government and its limited accessible foreign exchange reserves
“Persistent high inflation, if unmitigated, would increase pressures on lower-income deciles and adds to existing social grievances.”
The Economist Intelligence Unit (EIU) predicted that Iran and the US were unlikely to end their current impasse before 2027, while other geopolitical tensions, including a shadow war on Israel, were likely to persist. This will all put pressure on prices, the forecaster said, noting:
Elsewhere, Iran’s price rises are generally occurring through food costs, adding to inequality.
“The overall purchasing power has dropped because of [the government’s] economic reform in May. There is [an abundance] of goods in the market but people can't buy as much as they did before. Many items in people’s shopping baskets have been eliminated, reduced, or replaced with cheaper similar essential goods,” economist Alireza Heydari told Tejerat News in July, per Iran International.
All of this is adding to growing political instability in the country, ignited following the death of Mahsa Amini on 16 September, who was arrested by the country’s morality police for not wearing her hijab correctly and dressing in skinny jeans. Protestors have been lining Iran’s streets through the last month in response to her death, making officials uneasy.
With the cost of bread, a vital food staple, doubling, as reported by Iran International, inflation is occurring in an environment where there is little appetite for civil obedience.
Inflation forecasts for Iran: 2023 and beyond
Forecasting houses, banks and analysts’ Iran inflation predictions were broadly aligned in an expectation that prices won’t remain elevated at their current levels, but relatively high price rises could continue.
In April, the World Bank predicted the Iran inflation rate in 2022 to remain elevated above 25%, a trend that would last through to 2024. The bank wrote of Iran’s expected inflation:
Trading Economics’ macroeconomic model of 27 October predicted prices to rise by 51% at the end of the quarter, before the Iran inflation rate in 2023 falls to 30%.
An Iran inflation rate forecast compiled by Statista on 27 July suggested the price rises could regulate around 25% through 2027. Likewise, an Iran inflation forecast by the IMF suggested that price rises will even out at 25% over the next five years.
Note that analysts' predictions can be wrong. Their forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence. Remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size, and goals. And never trade money that you cannot afford to lose.
What is the current inflation rate in Iran?
State-run news organisation the Islamic Republic News Agency reported in October that Iran’s inflation rate was 39.6% in September
Is inflation expected to rise in Iran?
In April, the World Bank predicted the Iran inflation rate in 2022 to remain elevated above 25%, a trend that would last through to 2024. Meanwhile, Trading Economics’ macroeconomic model as of 27 October predicted prices to rise by 51% at the end of the quarter, before the Iran inflation rate in 2023 falls to 30%. A forecast by the IMF suggested that price rises will even out at 25% over the next five years. Note that their predictions can be wrong and shouldn’t be used as a substitute for your own due diligence.
How high will inflation go?
Trading Economics’ macroeconomic model as of 27 October predicted prices to rise by 51% at the end of the quarter, before the Iran inflation rate in 2023 falls to 30%. Note that their forecasts can be wrong. Always conduct your own research.Keep in mind that past performance is no guarantee of future returns. And never trade money that you cannot afford to lose.