Minimum wages will increase by 27% in the new Iranian year that started on March 21.
The decision was made at a meeting of the Supreme Labor Council in the final days of last Iranian year.
The meeting was held in the presence of Cooperatives, Labor and Social Welfare Minister Solat Mortazavi and Economy Minister Ehsan Khandouzi, along with representatives of employers and employees, the news portal of Iran Chamber of Commerce reported.
With the 27% rise, minimum wages will increase from 41,790,000 rials ($78) to 53,073,300 rials ($100) per month.
For wages above the minimum level, the increase was decided at 21%, plus 83,590 rials (15 cents) per day.
The council also agreed to increase the value of grocery coupon from 8.5 million rials ($16) to 11 million rials ($20), while increasing housing aid from 6.5 million ($12) to 9 million rials ($17). The latter raise has yet to be approved by the Cabinet.
Taking into account all the fringe benefits, minimum wagers will earn 80 million rials ($151) per month in the current Iranian year.
Runaway Inflation
It is pertinent to compare the rise in minimum wages with the runaway inflation in Iran.
According to the Central Bank of Iran, the country experienced an average annual inflation rate of 46.5% in the last Iranian year that ended on March 20, 2023.
The Central Bank of Iran says the Consumer Price Index stood at 794.3 in the 12th month of the year, indicating a 6.6% rise compared to the previous month.
The bank did not report on the year-on-year inflation in the 12th month.
The bank surveys CPI for 12 groups of goods and services. Notably, the “food and beverages” group saw 54.6% in annualized inflation.
“Transportation”, “health and medical care”, “clothing and shoes”, “home appliances and services”, “communications”, “entertainment and cultural affairs”, “education”, “restaurant and hotel”, “tobacco”, “housing and utilities (water, electricity, gas and other fuel)” and “miscellaneous goods and services” registered 32.3%, 41.9%, 45.9%, 33.3%, 19.3%, 37.8%, 35.1%, 80%, 28.8%, 48.3% and 38.3% respectively.
“Housing and utilities” with 37.05%, “food and beverages” with 25.51% and “transportation” with 8.9% have the highest coefficient among the groups surveyed.
Monthly CPI reports are also released by the Statistical Center of Iran. The center’s latest report shows inflation has reached a new high.
The average annualized inflation in the 11th month of last Iranian year (Jan. 21-Feb. 19) stood at 47.7%, SCI said in its latest report.
Only in the fiscal 1995-96 and 1996-97 did the country experience inflation rates above the current level.
Notably, this is the ninth consecutive month the annualized inflation is rising after the government put into effect what it touted as “economic surgery” by abolishing the heavily subsidized import of essential goods.
The general goods and services Consumer Price Index (using the Iranian year to March 2017 as the base year) stood at 608 in the month under review, indicating a month-on-month rise of 3.5% and a year-on-year rise of 53.4%.
Among 12 groups of goods and services reviewed by SCI, the highest and lowest annualized inflation rates were respectively registered for “hotels and restaurants” with 76.4% and “communications” with 9.8%.
The highest and lowest MOM inflation rates were respectively registered for “food and beverages” with 4.8% and “education” with 0.5% month-on-month, respectively.
“Hotels and restaurants” with 78.9% and “communications” with 15.3% saw the highest and lowest YOY inflation respectively.
The CPI of “food and beverages” stood at 911.8 in the month ending Feb. 19, indicating a 4.8% increase from the previous month. The index registered a YOY increase of 71.5% and the CPI of the group increased by 68% in the 12-month period to Feb. 19 compared with the corresponding period of last year.
CPI hit 598.3 for urban households and 662.3 for rural households, indicating a month-on-month increase of 3.4 and 4%, respectively.
SCI put the annualized inflation for urban and rural areas at 46.9% and 51.7%, respectively. The year-on-year inflation stood at 52.7% for urban areas and 56.7% for rural areas in the month.
The rise in prices of goods and services accelerated at an unprecedented pace after the government decided to overhaul the import subsidy system.
The government move saw the abolition of the controversial practice of allocating cheap dollars at the rate of 42,000 rials per dollar, locally known as the Preferential Foreign Currency, to import essential goods, including corn, soymeal, unprocessed oil, oilseeds and barley, in addition to wheat, flour and medicine.
The market value of the dollar is currently above 380,000 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 the introduction of the move in May.
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 has led to a dramatic rise in the prices of essential goods. In fact, the prices of all commodities and services have also risen suddenly in a ripple effect.
Also known as necessity or basic goods, essential goods are products consumers will buy, regardless of changes in income levels.
Poverty Line
Another important parameter in analyzing the minimum wage is the poverty line.
Although there are varying narratives on the Iranian poverty line that differs by a wide margin, the Cooperatives Ministry recently came up with its own estimate on the threshold.
“Economic, social and occupational groups put forward figures as the poverty line and try to increase their bargaining power for higher wages and prices. Unfortunately, in the absence of independent research institutions, poverty studies are being carried out in a scattered, disorderly manner, therefore uncertainties regarding poverty threshold linger. This ambiguity exists not only in determining the practical value of the poverty, but also in the theoretical concepts and methods employed to measure poverty and the poverty line,” economist Davoud Souri has noted.
According to the ministry, estimates show that the poverty line grew by 50% in the fiscal 2021-22 compared with the fiscal 2020-21 to reach 16.82 million rials ($31) per month, i.e. 37 million rials ($69) for a three-member household and 45.41 million rials ($85) for a four-member household.
The poverty line for 2022-23 is estimated to stand at 28.5 million rials ($53) per capita per month, i.e., 77 million rials ($145) for a four-member household. The figure is estimated at 147 million rials ($277) and 119 million rials ($224), respectively, for a four-member household and three-member household in Tehran in the fiscal 2022-23.
The ministry noted that per capita consumption of essential goods reduced from the fiscal 2020-21 to 2021-22 and therefore low-income households were forced to further reduce the consumption of these goods thanks to food inflation.
The real growth of expenditure (and income for that matter) is lower than the average of the country for the first (those with the lowest income) and third deciles and the nominal growth of household expenses in the first four deciles is less than the growth of the poverty line. These are signs of the lack of improvement in the welfare of low-income deciles in the fiscal 2021-22, therefore despite the slight decrease in the poverty rate, the poverty gap has increased compared with 2020-21.
