Sunday , 5 December 2021

Record-Breaking Inflation Confronts Raisi’s New Presidency

Iranwire – President Ebrahim Raisi starts his presidency this month as Iran’s inflation rate has exceeded 45 percent – a record over the past year according to the Statistics Center. If the Central Bank had published its own data, perhaps the figure would have been even higher; but Iran’s Central Bank stopped publishing inflation reports almost three years ago, and the Statistics Center is the only source for Iran’s inflation figures today. The August 23 inflation report is the first to be released under Raisi’s administration.

Last year the center reported an inflation rate of about 37 percent while a report by Mohammad Nahavandian, Hassan Rouhani’s economic vice-president, indicated that according to the Central Bank annual inflation in 2020-2021 stood at more than 47 percent. The reasons for the differential are unclear – but what is certain is that Iran is seeing an economic crisis that it has not experienced in its contemporary history.

Today’s situation can be compared to 2013 toward the end of Mahmoud Ahmadinejad’s term as president. Iran was experiencing severe inflation then as well – but the inflation rate declined when Hassan Rouhani won the presidential election in June. The growth of the price index for goods and services fell to less than two percent in August of that year.

Rouhani had not been elected to reduce inflation – but the mere fact of the change in government reset expectations and helped to reduce the inflation burden. The new President Raisi has seen no such reprieve.

Inflation data from Iran’s Statistics Center shows that, right after Raisi’s victory, prices trended upward. The market is not the cause; it is the hardline nature of Raisi’s incoming administration, his lack of either a strategy or an understanding of financial matters, and the difficulty he faces in reviving Iran’s nuclear deal with the West, with a commensurate reducing in American sanctions, that has triggered the rise in inflation now.

All things considered – it would have been more surprising if inflation had gone down after Raisi’s election victory.

The inflation report also says that the increase in prices is making life more and more difficult for Iranians. Food is almost 60 percent more expensive than last summer. The inflation rate of some foods is in three digits, for example for foods in the oils category, which is seeing inflation of about 105 percent.

Vegetables are seeing 84 percent inflation, dairy products 67 percent, meats 57 percent, breads and cereals 59 percent, while the increase in the minimum wage year-on-year is less than 40 percent. 

Mohammad Reza Tajik, a workers’ representative in the Supreme Labor Council, told Iran’s Labor News Organization last week: 

“Inflation in the first five months of the year has completely erased the small effects of the 2021-2022 wage increase. All goods have increased in price by several hundred percent. Bread, which is the dominant food of workers and wage earners, is 100 percent more expensive and in some provinces and regions more than 100 percent. I have recently bought sangak flat bread for 8,000 tomans and when the price of sangak reaches 8,000 tomans, the first step must be to repair wages and pensions, and then control inflation and equalize the foreign exchange rate. Shouldn’t workers be able to eat bread?”

Reza Tajik asked President Raisi to convene a meeting of the Supreme Labor Council as soon as possible and to consider raising wages in line with inflation.

But is such a move possible in the current climate? Even if Raisi’s government raises wages, will manufacturing firms be able to pay higher wages in a “stagflation” economy?

According to the Statistics Center, the inflation rate in industrial production has reached nearly 80 percent and the rate of increase in employers’ expenses compared to last year has exceeded 94 percent.

All the evidence shows that the depth of the economic and social crisis has reached an unprecedented level and it is unclear how much more complex the situation will become in the coming months. But what is clear is that Raisi’s government, still undecided on various policies and confused in its attempt to resolve the nuclear deal standoff, with little prospect of the lifting of American sanctions in the short erm, paint a bleak picture for the coming days, weeks and months.