Prices of essential goods have increased by more than 60% over the past year, the Ministry of Industries, Mining and Trade reported.
Vahid Shaqaqi-Shahri, an economist and university professor, believes that price increases have led to the elimination of many commodities from the consumers’ basket of goods and deepened the gap among income deciles. A translation of his write-up for the Persian daily Ta’adol follows:
According to the reports of Industries Ministry, the prices of essential goods have increased by more than 60% over the past year. It gets even more critical when we realize that money creation and expansion of monetary base in Iran’s economy are a persistent trend, the effect of which on inflation forebodes a dark economic future.
On Nov. 9, the Central Bank of Iran announced that money supply has exceeded 40,000 trillion rials [$133 billion], indicating an increase of 39.1% compared with Sept. 21, 2020. In other words, factors affecting the growth of inflation in the Iranian economy are getting more active and the failure to adopt proper measures will lead to higher inflation rates.
The Iranian rial has depreciated from 235,000 rials per US dollar in the month ending June 21, 2021, to 292,000 rials at present [the exchange rate has risen above 300,000 since the author wrote this article], i.e., showing an increase of 60,000 rials over five months.
Don’t forget that the exchange rate of US dollar was 35,000 rials in the month ending April 20, 2018. The Iranian forex market has seen sharp fluctuations in recent years. Obviously, both inflationary expectations and the prices of goods and services increase when the value of the dollar increases by 60,000 rials in five months.
When the dollar gets stronger against the Iranian rial, first the prices of assets go up and then the prices of goods and services. Fluctuations in the exchange rates of the rial against the US dollar lie at the root of the ups and downs in the prices of essential goods.
In addition, certain behaviors in Iran’s economy have increased risks and swept away stability and trust from markets. Talks around the cancellation of subsidized forex policy have pushed the markets into a nervous reaction, as the government and parliament raved about their intention to terminate the policy.
Inflationary expectations surge when Iranian policymakers announce a decision out of the blue. After some time, the government and parliament announced they would not implement the decision for fear of its likely dangerous ramifications but the after-effects are still being felt in different fields. This is while government officials and members of the parliament could have done their research and weighed the outcome before making the decision public.
Nevertheless, the issue resulted in back-to-back uncertainties in the country’s economic environment for two months …
On the other hand, the issue of inconsistency continues to mar the production, distribution and import systems. Supplying many basic needs, including livestock feed, have yet to be organized.
Field studies show our country’s agriculture, livestock and poultry producers are still grappling with problems related to the supply of raw materials. The production system has yet to synchronize with import and distribution systems.
In general, the lack of coordination between the three systems is one of the propositions that give rise to shortage of essential goods in the market and inflation.
In case the dollar depreciation stops or nuclear negotiators reach an agreement in the coming days and weeks, we can expect the rising trend in commodity prices to halt and the markets to stabilize. But if the Joint Comprehensive Plan of Action [the formal name of the 2015 nuclear deal Iran signed with world powers] were to fall apart, or the negotiations drag on, unfortunately, we will see yet another increase in inflationary expectations and another round of price hike.
