Coupon is the systematic suppression of inflation in a small area while prices of goods move in an interconnected space. Practical strategies should be taken to tackle the rise in prices of goods and services in all sectors, if we are keen on curbing or easing inflation.
This was stated by Morteza Afqah, an economist and university professor, in a write-up for the Persian-language daily Ta’adol. A translation of the text follows:
Electronic coupons are slated to replace cash subsidies by the second half of the current fiscal year [starting Sept. 22]. Coupons are to be issued for some food items (probably those whose subsidies were removed in May plus bread). But the success of this policy depends on two key issues: first, coupons need to cover a wide range of goods and not just the ones whose prices were liberalized. Second, coupons alone are not sufficient.
The inflationary wave of May and June was not limited to food; the removal of forex subsidies drove up the prices of all goods and services. Note that people (workers, pensioners and women householders in particular) need a dwelling to live in, medicines, education and transportation; all these have seen prices rise from 10% to 100%.
On the other hand, inflation generally puts more pressure on low-income deciles; the higher the inflation, the harder it gets for low-income individuals and the wider income gap gets.
Coupons are unable to compensate the losses of low-income deciles and meet their basic needs. You need to note that today’s inflation is the accumulation of at least 20 years of double-digit inflation. Therefore, if the government seeks to give goods to the people only in proportion to the current year’s inflation, in the best case, only this year’s inflation will be compensated and not the accumulated inflation of the past 20 years.
If the government seeks to give goods to the people only in proportion to the current year’s inflation, in the best case, only this year’s inflation will be compensated and not the accumulated inflation of the past 20 years
Of course, the success of nuclear talks can lead to the release of Iran’s foreign resources and increase trade. As a result, the inflationary pressure might come to a halt or at least the growth of inflation would slow. The revival of the nuclear agreement can prevent the deepening gap between income deciles.
In this situation, regardless of the political environment, the coverage of electronic coupon is very important. Assume that the share of food in the overall consumer basket of a worker’s family is 36% (according to official calculations); in the best-case scenario, coupons can offset this inflation, provided that it covers all the food and beverages. However, more than 60% of the costs of living still remain inflated. The government needs to take into account the inflation coming from the liberalization in housing, transportation, education and medical treatment; even the costs of home appliance repairs, tires and car repair, apartment maintenance and hundreds of other services increased in May and June. Do we have a coupon for maintenance services or rents?
Coupon is the systematic suppression of inflation in a small area but prices of goods move in an interconnected space. Practical strategies should be taken to tackle the rise in prices of goods and services in all sectors, if we are keen on curbing or easing inflation.
Take housing as an example: It only takes the implementation of Article 31 of the Iranian Constitution and Article 149 of Labor Law to control housing inflation.
Those requirements include the allocation of budget for supplying housing to low-income families and developing a roadmap to achieve the goals in this sector.
All in all, you can’t expect coupons to offset all the inflationary effects of price liberalization of the past couple of months. At best, coupons will make up for 40% of inflation; workers, pensioners and women householders as well as low-income households will still be left out in the cold to grapple with inflation and the heavy cost of living.
