Fluctuations in the Iranian rial’s value against foreign currencies are still making headlines, it’s a key variable and affects the livelihoods of Iranians apart from the economic indicators.
Those who are not active in speculative markets and belong to middle income deciles are now struggling with economic challenges resulting from these fluctuations. Therefore, it is very important that analytical approaches survey the living conditions of these groups.
The past few weeks have seen the value of the Iranian rial fall to record low against major foreign currencies. Although a fraction of the losses has been recovered in the past few days, experts have warned against the detrimental effects of forex fluctuations on the domestic markets.
Vahid Shaqaqi-Shahri, an economist, prefaced his write-up for the Persian daily Ta’adol with this note. A translation of the article follows:
In general, two factors can impact the lives of the general public. The first one is instability and price fluctuations, and the second is the appreciation of the US dollar against the rial. Both increase poverty and reduce people’s purchasing power. These two issues stem from two economic anomalies: inflation and currency fluctuations.
Any volatility in economic indicators, including inflation and the devaluation of local currency, directly affects the livelihoods of various income deciles. The increase in the dollar’s value manifests within a week to three months in the asset market.
Based on the principle of market convergence, fluctuations in one market affect other markets over a certain period of time. The first of these effects appear in the asset market. First, gold prices increase and then domestic and foreign car prices follow suit. After that, home prices suffer price shocks and finally the capital market reacts to the increase in the dollar rate. Following the asset market, the goods and services market also reacts to currency fluctuations.
In Iran’s economy, it takes up to nine months for the rise in the dollar rate to completely impact the goods and services markets, while the appreciation of the dollar against the rial has happened over the past two months. This trend has impacted the asset market, but the goods and services markets have not fully reacted to forex market developments, which means that the increase in the dollar rate has yet to fully manifest itself in the markets of goods and services.
In other words, we should expect price shocks in the markets of goods and services. My gravest concern is the high prices that we’ll see in the spring of 2023 [starting late March]. Predictions claim that in the spring, the increase in the price of the dollar will appear in the economy and we will witness an increase in prices. This is where the government’s role in regulating the market will become significant.
Iranian families are facing two important economic periods: Norouz [the Iranian New Year holidays starting on March 21] and the month of fasting, Ramadan [which commences a few days after the onset of Norouz]. It is necessary for the government to plan in advance for these two occasions. For example, it needs to import goods, or increase the production of essential commodities and ensure their timely delivery to consumers.
The decision-makers should work out a solution for preventing any likely economic crises. They must devise the best plans so that the country manages to pass through these occasion with the least challenges. Unfortunately, the rial’s devaluation will soon manifest in the goods and services markets and the government is expected to make detailed plans for the spring now, so that Iran’s economy can sail through this narrow, treacherous gorge intact.
