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Is Industrial PPI’s U-Turn Pointing to Recovery?
Economy, Domestic Economy

Is Industrial PPI’s U-Turn Pointing to Recovery?

Latest inflation figures may suggest a pickup in Iran’s industrial base.

Producer Price Index, which measures inflation in manufacturing costs and prices, and is considered a foreteller of consumer prices, rose 4.5% in the rolling year to April 19, according to the latest report published by the Central Bank of Iran on its website.

According to the Persian newspaper Donya-e-Eqtesad, the rise is the lowest increase in producer prices since 1991, when the central bank started compiling PPI.

PPI (using 2011 as the base year) stood at 216.3 in Farvardin (Iranian month ending April 19), indicating a 0.2% growth compared with the previous month, the CBI report shows.

Part of that increase is due to a 1.7% rise in Industrial PPI, the most in 11 months, in the said month. The rise in industrial production prices comes after months of back-to-back decline, which had economists worried about low consumer demand that led to the decline.

There are three possible reasons behind the rise in industrial manufacturing prices. The rise could point to escalating economic activity in the sector, though one month is too weak a signal to back this assumption.

If prices continue to rise in the coming month, then we would be looking at a revival of industrial activity.

Rising costs, like wage increases, may have also fueled industrial PPI. Costs were rising for producers in previous months, but low consumer demand stopped producers from hiking their prices, the paper wrote.

That worry may be starting to dissipate, as the economy picks up in the post-sanctions era.

Last but not least, global commodity prices have reversed their decline in recent months. This rise has, at least in part, impacted the Iranian economy, especially its large commodity-fueled industrial sector. Thus, rising commodity prices have driven up production costs.

Iran emerged from years of economic isolation in January when world powers led by the United States and the European Union lifted crippling sanctions against Tehran in return for curbs on Tehran’s nuclear program.

The implementation of the accord in July has increased economic activity ever since, though the legacy of bad policy in prior years weighs heavily on the economy.

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