Determinants of Inflation in Iran and Policies to Curb It

High and volatile inflation in Iran has been an endemic economic and social issue that has contributed to rising poverty and social tensions. 
Iran’s CPI inflation has fluctuated sharply over the past two decades around its annual average of 20% (Figure 1.a.), and has been much higher than that of Iran’s emerging market and regional peers (Figure 1.b.). With the Covid-19 pandemic hitting Iran’s economy on top of preexisting US trade and financial sanctions and exacerbating the supply constraints, its annual CPI inflation reached nearly 50% at the end of FY 2020-21 (Iranian year that ended on March 20, 2021) and averaged 40% during FY 2021-22 (Iranian year that ended on March 20, 2022). 
Coupled with low economic growth and high unemployment, rising inflation has fueled widespread protests in the country amid a significant erosion in purchasing power. The new government that took office in August 2021 identified tackling inflation as a key economic priority, reads a working paper published by the International Monetary Fund. Excerpts follow: