Domestic Economy

Revisiting Inflation

Revisiting Inflation
Revisiting Inflation

Is the rise in the global prices of fuel and food behind Iran’s inflation? The answer is negative. 
Even if you could detect the impact of the growth in prices on inflation, it would have been insignificant and impermanent. The root cause of inflation in Iran, like everywhere else, is the increase in money supply, says Hossein Abbasi, a lecturer in the Department of Economics of the University of Maryland. A translation of his article for the Persian economic daily Donya-e-Eqtesad follows:
Governments, especially those of developing countries, have always faced the problem of financing the public budget through taxation. Therefore, many of them have resorted to some degree of financing their governments with inflation tax. 
Despite having access to oil revenues, Iranian governments of the past 50 years have always satisfied a part of their insatiable appetite for spending by printing money. This is called financing through inflation tax because, on the one hand, the government prints money and gains spending power, and on the other, it creates inflation and reduces the purchasing power of people. The story of inflation in Iran is basically the same; looking for the root of inflation anywhere else is a red herring. 


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