The Purchasing Managers' Index for Iran’s overall economy declined in the third month of the current fiscal year (May 22-June 21) after surging in the preceding month.
The first fiscal month (started March 21) typically sees a decline in economic activity every year as it starts with the Iranian New Year holidays, as businesses only have 15 working days.
The latest survey of the Statistics and Economic Analysis Center of Iran Chamber of Commerce, Industries, Mines and Agriculture — the sponsor and coordinator of Purchasing Managers' Index reports in Iran — shows the index (known by its Farsi acronym Shamekh) settled at 54.73 in the month to June 21 from 56.17 registered in the previous month, indicating a 1.44-point or 2.56% decline.
PMI indicates the prevailing direction of economic trends in the manufacturing and service sectors. The headline PMI is a number from 0 to 100, such that over 50 indicates an economic expansion compared with the previous month. A PMI reading under 50 indicates contraction and a reading of 50 implies no change.
PMI is an index of the prevailing direction of economic trends, aiming to provide information about business conditions to company directors, analysts and purchasing managers.
“Business owners believe depreciation of the national currency has led to a shortage of working capital. Many of them have been providing goods and services using their old inventories. On the other hand, with rising prices, they find themselves incapable of producing at command pricing set by the government.
“A back-to-back rise in the price of foreign currencies against the rial and a decline in public purchasing power have reduced demand in services, agriculture and construction sectors,” the report reads.
As the commerce chamber explained, the steep rise experienced by the index in the second month of the year owed partly to resumption of normal business activities after a long holiday in the first month of the year.
Considering the shortage of working capital and a decline in purchasing power, the drop in economic activities in the first month of this year has been more pronounced.
“The surveyed businesses believe the rise in demand owes, on the one hand, to recovery after New Year holidays, and on the other to increased buying ahead of the surge in prices,” the previous report said.
The government recently decided to abolish the controversial practice of allocating cheap dollars at the rate of 42,000 rials per dollar, locally known as Preferential Foreign Currency, for importing essential goods, including corn, soymeal, unprocessed oil, oilseeds and barley, in addition to wheat, flour and medicine. Instead, it is depositing cash directly to the account of income deciles 1 to 9.
The market value of the dollar is currently above 300,000 rials.
“Until now, we have been paying to producers [read importers] but now the subsidies go to consumers. In fact, the Preferential Foreign Currency has not been ceased, rather the allocation method has changed,” President Ebrahim Raisi said in a televised speech on the eve of introducing the move last month.
In his speech, Raisi emphasized that the removal of cheap dollar allocation will not lead to a price rise in wheat, flour and medicine. However, the move led to a dramatic rise in the prices of essential goods.
Also known as necessity or basic goods, essential goods are products consumers will buy, regardless of changes in income levels.
In fact, the prices of other food products have also risen suddenly in a ripple effect.
PMI Sub-Indexes
The ICCIMA survey has five main indices to calculate the overall PMI.
According to the report, the “business output” sub-index increased from 28.52 in the first fiscal month (March 21-April 20) to 61.37 in the second month of the current fiscal year (April 21-May 21), but decreased to 59.5 in the third month (May 22-June 21).
The “new orders” sub-index increased from 29.34 in the first fiscal month to 55.19 in the second month and declined to 51.9 in the third month.
The “supplier deliveries” sub-index, which measures how fast deliveries are made, increased from 48.16 in the month ending April 20 to 58.6 in the month ending May 21 and increased to 60.21 in the month ending June 21.
The “raw materials inventory” sub-index increased from 41.64 in the month ending April 20 to 45.34 in the month ending May 21 and grew to 47.72 in the month ending June 21.
The PMI reading of “employment” sub-index increased from 50.85 in the month ending April 20 to 54.74 in the month ending May 21 and declined to 52.41 in the month ending June 21.
To calculate PMI, seven secondary criteria are also surveyed by the center, namely “raw material purchase prices”, “warehouse inventory”, “exports”, “product price”, “fuel consumption”, “sales” and “production expectations”.
The “raw material purchase prices” sub-index grew from 83.26 in the month ending April 20 to 92.75 in the month ending May 21 and decreased further to 86.7 in the month ending June 21.
The “warehouse inventory” sub-index decreased from 52.16 in the month ending April 20 to 49.63 in the month ending May 21, but grew to 53.42 in the month ending June 21.
The “exports” sub-index increased from 54.02 in the first month of the current fiscal year to 50.7 in the second month but declined to 50.1 in the third month.
The “prices of manufactured products or services” sub-index increased from 63.13 in the month ending April 20 to 70.05 in the month ending May 21 and decreased further to 62.89 in the month ending June 21.
The “fuel consumption” sub-index increased from 34.81 in the month ending April 20 to 62.22 in the month ending May 21, but declined to 61.84 in the month ending June 21.
The “sales” sub-index increased from 34.27 in the month ending April 20 to 60.08 in the month ending May 21, but declined to 58.08 in the month ending June 21.
The sub-index of “business output forecasts for the following month” decreased from 72.05 in the month ending April 20 to 43.82 in the month ending May 21, but increased to 50.54 in the month ending June 21.
The overall PMI increased from 37.49 in the month ending April 20 to 56.17 in the month ending May 21 and grew to 54.73 in the month ending June 21.
PMI, among the most precise indicators showcasing a country’s economic condition, was first devised by the Institute for Supply Management in the United States in 1948. It is calculated as (P1 * 1) + (P2 * 0.5) + (P3 * 0) where P1 is the percentage of answers reporting an improvement, P2 is percentage of answers reporting no change and P3 is percentage of answers reporting a deterioration.
