The reasons fueling hyperinflation in the last calendar month are plenty, the Central Bank of Iran’s deputy for economic affairs said.
“There are multiple factors. Main among them are supply shock and steep rise in the price of imported goods,” Payman Qorbani said, the CBI website reported.
Speaking on state TV late on Sunday, Qorbani elaborated that rising forex rates and the government’s decision to reinvent forex subsidy policy were and are instrumental in pushing up consumer prices.
On May 10 the government put an end to subsidizing imports of essential goods including corn, soymeal, unprocessed oil, oilseeds and barley plus wheat, flour and medicine.
It said it would instead pay cash subsidies to the needy. The CBI deposited 3-4 million rials ($10.5-$14) in cash to each recipient in a bid to compensate for the high and rising food prices unseen in Iranian history.
Inflation has reached all-time highs adding more pressure on those at the lower-end of the economic ladder, fixed-wage earners and retirees as the cost of living skyrockets. The Statistics Center of Iran in its last report said inflation was at unprecedented levels in the last calendar month ending June 20.
Inflation, it said, jumped 12.2% on the previous month. Food inflation was a massive 25.9% higher month-on-month.
Earlier, the Ministry of Cooperatives, Labor and Social Welfare had said the monthly growth in inflation exceeding 1.5% would be a harbinger of an alarming economic situation. Notably, over the past 25 years, the average monthly inflation hovered near 0.7%, reaching 7% at its worst.
The CBI’s Qorbani concurred that the government decision to eliminate currency subsidy for basic imports was the main driver of inflation.
However, he expressed the hope that the grave impact of what has been described as “economic surgery” would be contained in the coming months. He did not elaborate nor say how the galloping inflation will be tamed by the Raisi administration.
The end of subsidies not only increased the prices of basic goods but also triggered inflation in almost all other markets like the asset market. The bold move to cut the costly forex subsidies pushed up monthly inflation of key foods like vegetable oil by 200% overnight.
Higher Import Costs
Rising import bills is another factor behind the ruinous inflation mainly due to the rising international food prices, the senior CBI official noted.
The price food ranging from wheat and other grains to meat and oils have shot up in the past weeks. A slew of factors, including the rising cost of fertilizers and energy plus Russia’s invasion of Ukraine have made a bad situation worse.
Export bans and serious disruptions have impacted food export from several countries, namely India (wheat), Ukraine (wheat, oats and sugar, among others) and Indonesia (palm oil), according to CNBC.
Qorbani described the present hyperinflation as “hidden inflation” that he said existed since the inception of the currency subsidy policy more than three years ago but came to the fore when the policy was eliminated.
Allocating cheap currency for import started in the spring of 2018 following the steep rise in foreign exchange rates. At the time the government subsidized currency for importing basic goods selling the US dollar for 42,000 rials.
The policy was censured for giving rise to rampant corruption. fraud, nepotism and rent-seeking… not to mention that for all practical purposes it failed to deliver.
Observers say that the huge difference between the subsidized currency rates and the open market was one prescription for greed and failure.
