With less than three months to go until the incumbent government remains in power, the prices of essential goods are set to rise once again.
Vegetable oil and sugar factories have secured permission from the government to once again raise the price of their products. That’s contrary to what Government Spokesman Ali Rabiei said recently: Any increase in consumer prices is banned in the first quarter of the current Iranian year (March 21-June 21).
According to a report by the Persian-language daily Etemad, the prices of vegetable oils have increased by 35% while those of hydrogenated oils have risen by 30% since May 16.
Bread prices have also increased by 50% without an official announcement while the 72% increase in the price of sugar has been confirmed officially.
All this come as vegetable oil prices went through volatile periods of price increases and shortages in the last Iranian year. For example, some supermarkets conditioned sales of a limited number of hydrogenated vegetable oil based on customers’ National ID Code.
There were four periods of cooking oil price increases over the past year: on July 4, 2020, the Market Regulation Headquarters raised the consumer prices of this strategic commodity by 12-14%. On Nov. 21, 2020, prices of cooking oils packaged in PET containers jumped by 10% and those packaged in other types of containers by 13%.
And, on Feb. 14, the Consumers and Producers Protection Organization approved the 13.8% rise in the prices of cooking oil packaged in tin-plated steel.
Sugar prices were also raised last year but in a covert manner. Sugar, which was sold at 87,000 rials per kilogram by wholesalers, is now being sold at 115,000 rials per kilogram. Retailers sell a kilogram of sugar at 150,000 rials, though its government-mandate price is set at 66,500 rials.
The rise in retail prices of bread has been allowed but the rates of increases have yet to be announced, Bijan Norouz Moqadam, the head of Tehran Bakers Union, said.
He confirmed reports on the unofficial growth in bread prices in Tehran and said, “The mounting costs have prompted some bakers to increase bread prices by 50-100%. They could no longer wait for the official announcement to be released. There have been complaints about price rises and loaves of bread shrinking in size. But we can’t sell bread at the same prices of two years ago when expenses, including workers’ salaries and fuel costs, have increased.”
The latest official changes in the prices of bread were implemented on Oct. 6, 2019, Eslam Habibi, the head of Varamin Bakers Union, said.
“Over the past two years, operating costs have soared. Flour is not the only ingredient when it comes to baking bread. Baking yeast prices have grown, as workers’ compensation insurance premiums and their wages have jumped as well,” he said.
“Bread prices should have increased four months ago. Many bakers in Varamin, Qarchak and Pishva have yet to increase bread prices, but bakers in Tehran have applied price rises. We initially proposed a 75% rise in the prices; the 50% increase which has been seemingly introduced in Tehran is not enough for us to cover our expenses.”
Noting that flour is being supplied to bakers without difficulty, Habibi said, “However, the contribution of flour to the end price of bread is no more than 30%. Transportation costs, for instance, increased by 100% last year and rumors are that they will rise 150% this year.”
Unless the government fails to liberalize bread prices, consumers will buy the food staple at different prices and qualities. It is more appropriate for the government to pay bread subsidies directly to the people, he added.
Command Economy
Vahid Shaqaqi-Shahri, an economist, believes that in a command economy prices will never decrease, as pricing measures taken by the governments to support consumers lose their efficacy after some time.
“The need for a large part of food and machinery used in food production is met through imports and so their prices are inevitably determined by fluctuations of the foreign exchange rate,” he said.
Referring to the wage-price spiral, a macroeconomic theory used to explain the cause-and-effect relationship between rising wages and inflation, he continued, “The increase in prices of a product or service spills over to other parts of the economy. Teachers, taxi drivers and others must both provide and receive services; price hikes would exert pressure on their living. Rising prices increase demand for higher wages, which leads to higher production costs and further upward pressure on prices.”
“Since last year, we’ve been witness to price hikes of all goods from clothes to housing to cars and now we are seeing the prices of strategic goods like bread, sugar and oil going ballistic. Low-income people’s living conditions are being affected by these price increases,” he said.
On the government’s approval of the rise in the prices of cooking oils, Shaqaqi-Shahri said, “The better part of raw materials to produce vegetable oils and fats are being imported. The constant rise in the value of US dollar has increased production costs of processed oil. A huge rent-seeking opportunity opened up since the government introduced its subsidized imports policy. The government tried to prevent price increases and shortage by allocation of subsidized currency at the rate of 42,000 rials per US dollar to import essential goods, but we saw that, for instance, the supply of meat, eggs, chicken and now cooking oil has been an issue of concern due to lack of coordination among production, import and distribution systems.”
