The Purchasing Managers' Index for Iran’s overall economy has bounced back above the 50-mark.
The latest survey of businesses by the Statistics and Economic Analysis Center of Iran Chamber of Commerce, Industries, Mines and Agriculture — the sponsor and coordinator of PMI reports in Iran — shows the index (known by its Farsi acronym Shamekh) settled at 52.08 in the sixth month of the current Iranian year (Aug. 23-Sept. 22) from 48.06 registered in the previous month, indicating a 4.02-point or 8.36% increase.
PMI indicates the prevailing direction of economic trends in the manufacturing and service sectors. The headline PMI is a number from 0 to 100, such that over 50 indicates an economic expansion compared with the previous month. A PMI reading under 50 indicates contraction and a reading of 50 implies no change.
It is an index of the prevailing direction of a country’s economic trends, aiming to provide information about business conditions to company directors, analysts and purchasing managers.
“Due to a severe shortage of financial resources and the banking sector’s lack of cooperation in providing working capital, manufacturers are having a hard time procuring raw materials for production. The abolition of subsidized imports on the other hand has given rise in prices of raw materials which, in turn, created a slump in many industries,” the report reads, adding that the decline in supply is expected in the coming months.
The rise in prices of goods and services accelerated at an unprecedented pace after the government decided to overhaul the import subsidy system earlier this year.
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 300,000 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.
PMI Sub-Indexes
The ICCIMA survey has five main indices to calculate the overall PMI.
According to the report, the “business output” sub-index decreased from 50.82 in the fourth month of the current fiscal year (June 22-July 22) to 47.37 in the fifth month of the current fiscal year (July 23-Aug. 22) and increased to 52.34 in the sixth month (Aug. 23-Sept. 22).
The “new orders” sub-index decreased from 47.14 in the fourth fiscal month to 42.33 in the fifth month and grew to 52.87 in the sixth month.
The “supplier deliveries” sub-index, which measures how fast deliveries are made, decreased from 56.22 in the month ending June 22 to 51.01 in the month ending Aug. 22, but increased to 54.05 in the month ending Sept. 22.
The “raw materials inventory” sub-index decreased from 45.91 in the month ending June 22 to 44.38 in the month ending Aug. 22 but grew to 45.22 in the month ending Sept. 22.
The PMI reading of “employment” sub-index increased from 51.17 in the month ending June 22 to 57.16 in the month ending Aug. 22, but decreased to 52.53 in the month ending Sept. 22.
To calculate PMI, seven secondary criteria are also surveyed by the center, namely “raw material purchase prices”, “warehouse inventory”, “exports”, “product price”, “fuel consumption”, “sales” and “production expectations”.
The “raw material purchase prices” sub-index declined from 74.36 in the month ending June 22 to 67.97 in the month ending Aug. 22, but grew to 69.4 in the month ending Sept. 22.
The “warehouse inventory” sub-index decreased from 57.1 in the month ending June 22 to 55.47 in the month ending Aug. 22 and to 51.09 in the month ending Sept. 22.
The “exports” sub-index increased from 46.96 in the fourth month of the current fiscal year to 48.26 in the fifth month, but declined to 45.24 in the sixth month.
The “prices of manufactured products or services” sub-index decreased from 62.27 in the month ending June 22 to 51.96 in the month ending Aug. 22, but increased to 54.57 in the month ending Sept. 22.
The “fuel consumption” sub-index increased from 56.53 in the month ending June 22 to 56.82 in the month ending Aug. 22, but declined to 45.32 in the month ending Sept. 22.
The “sales” sub-index increased from 46.32 in the month ending June 22 to 50.35 in the month ending Aug. 22 and to 52.83 in the month ending Sept. 22.
The sub-index of “business output forecasts for the following month” increased from 50.18 in the month ending June 22 to 63.72 in the month ending Aug. 22, but decreased to 52.47 in the month ending Sept. 22.
The overall PMI increased from 50.18 in the month ending June 22 to 63.72 in the month ending Aug. 22, but declined to 52.47 in the month ending Sept. 22.
PMI, among the most precise indicators showcasing a country’s economic condition, was first devised by the Institute for Supply Management in the United States in 1948. It is calculated as (P1 * 1) + (P2 * 0.5) + (P3 * 0) where P1 is the percentage of answers reporting an improvement, P2 is percentage of answers reporting no change and P3 is percentage of answers reporting a deterioration.
