Governments in Iran always intensify supervisory activities in an attempt to control inflation whereas inflation will remain in place as long as the factors causing it continue to exist, Vahid Shaqaqi-Shahri, an economist and university professor, prefaced his write-up for the Persian daily Ta’adol with this note. Below is a translation of the text:
Inflation has two sources: domestic and foreign. Global prices of goods have increased and since Iran is an importing country, the rise in prices can be partly blamed on the rise in global prices.
The suspension of the Joint Comprehensive Plan of Action [Iran nuclear deal] has also played a part in increasing prices. The fate of the deal should have been known by now. Protracted negotiations have been conducive to inflation instability. On the other hand, inflationary expectations increase as we get closer to the US 2022 midterm congressional elections in November.
Poll numbers suggest that the Republican Party will win the elections; the hawkish party opposes the revival of JCPOA and believes that intense economic pressure should be imposed on Iran. The economic smothering will result in another round of price rises.
The rise in customs tax and duties will inflate the prices of raw materials and other imports. Uncertainties about subsidized imports, the government’s procrastination and lack of transparency regarding this matter also fuel the flames of inflation. Budgetary imbalances send negative signals to the economy. Numerous erroneous bylaws also contribute to a rise in inflation.
The structure of Iranian banks intensifies imbalances and boosts money supply; officials keep on manipulating the economy. The government needs to avoid any manipulative practices to control inflation
We are still seeing a gradual increase in customs duties for metals and other commodities, excessive borrowings from the central bank and a growing number of repurchase agreements [a form of short-term borrowing for dealers in government securities].
At the end of last year [fiscal 2021-22], the banks’ overdrafts from the central bank reached 1,200 trillion rials [$4.3 billion] and repo [funds] also exceeded 950 trillion rials [$3.4 billion] on April 14, which means that money creation is continuing unabated.
The structure of Iranian banks intensifies imbalances and boosts money supply; officials keep on manipulating the economy. The government needs to avoid any manipulative practices to control inflation. On the other hand, the government needs to subsidize imports as long as JCPOA is in limbo; the allocation of cheap currency at the rate of 42,000 rials per US dollar to essential goods’ imports should continue and the government needs to be transparent and vocal about this move.
On overdrafts from banks and the central bank, the government should practice financial discipline. The recent increase in the value of dollar is sending an inflationary signal to the economy. Customs duties should not increase as long as economic conditions are poor, as a hike in customs duties will lead to higher import costs and affect domestic production.
The consequences of past misguided policies are coming up to haunt our economy. You can no longer control the inflationary burden of the rise in workers’ and teachers’ salaries, the ripple effect of their pay rise will be transmitted [to the whole economy]; wages of other groups such as pensioners must rise as well.
The fiscal 2022-23 will definitely see a change in the subsidized forex policy, but it is still not clear how we’ll get there.
