In August 2021, Iran’s inflation rate reached 45.2 percent, the highest in 26 years. At a time when Tehran is expanding its nuclear program, the inflation rate reveals that, despite the fact that Washington’s maximum pressure campaign is gaining traction, it is still moving forward due to its own inertia.
According to the Iranian Statistical Center, the country’s 12-month average inflation rate was 45.2 percent in the Iranian month of Mordad (about August). Urban households accounted for 44.5 percent of the total, while rural households accounted for 48.7 percent.
Since President Donald Trump’s withdrawal from the 2015 nuclear deal, technically known as the Joint Comprehensive Plan of Action, Iran’s inflation has been steadily rising (JCPOA). Due to the large pandemic-related slowdown, deflationary forces dominated the global economy in 2020, and inflation fell in relative terms. However, global deflationary influences began to fade in 2021, and inflation in Iran has now surpassed that of 2019.
Part of the reason for Iran’s record-high inflation is the rising cost of imported commodities. According to the Iranian Statistical Center, the rial-denominated four-quarter point-to-point import price index increased by 505.9% in spring 2021, while the dollar-denominated index increased by 58.6%.
Inflation is directly caused by the increase in import prices in two ways. The first method is to increase the cost of imported consumer items. The second way is to raise the cost of imported inputs that are utilized by domestic producers to make goods.
The depreciation of the rial is largely to blame for the significant spike in the import price index. On April 30, 2020, one US dollar was worth 161,400 rials in Iran. The US dollar was worth 232,500 rials a year later. One US dollar was worth 278,800 rials on September 10, 2021.
In addition, the producer price index (PPI) has risen. In spring 2021, the four-quarter point-to-point PPI increased by 73 percent. PPI inflation remained at 60.4 percent on an annual basis, with a quarterly rate of 10.1 percent.
Iran’s other economic indicators, aside from inflation, give contradictory signals about the country. As the initial COVID-19 shock dissipated, the labor market improved slightly in compared to last year. Iran had 400,000 more workers in spring 2021 than in spring 2020. However, there are 1.5 million fewer workers today than there were in spring 2019.
In spring 2021, the unemployment rate was 8.8%, while the labor participation rate the percentage of persons who have a job or are looking for one was only 41.4 percent. The spring 2021 labor participation rate was marginally higher than the spring 2020 rate of 41%, but it was still significantly below the spring 2018 rate of 45.2 percent, which was recorded before the start of the US maximum pressure campaign.
Iran’s economy has been expanding as well. According to the most recent quarterly data, the GDP increased by 6.8% in winter 2021. The oil and gas industry, which climbed by 32.8 percent as a result of Washington’s lax implementation of oil sanctions and increased Chinese purchases of Iranian oil, accounted for the majority of the growth.
The Biden administration has shown little interest in intensifying or maintaining pressure on Iran, and the country’s economy is improving. However, despite the weak execution of US sanctions, Iran’s economy remains under strain, as the structure of the maximum pressure campaign has not changed.
Recognizing that the Biden administration is keen to resurrect the JCPOA, Iran’s dictatorship has become emboldened, doubling down on its nuclear program expansion. While Washington’s power over Tehran has dwindled, the Biden administration still has time to right the ship and put its Iran policy on the right track by increasing economic pressure on Tehran.
What causes inflation in Iran?
“Internal, bureaucratic, and executive inefficiencies are the fundamental reason of present high inflation,” stated economist Morteza Afghahi. “However, because we rely on selling crude oil… and on foreign currency gained from oil profits, we are more vulnerable to sanctions.”
Due to a lack of dollars, the government has been forced to print more and more rials in order to pay its debts, boosting the economy but fueling inflation.
As a result, a large number of Iranians have fallen into poverty. According to the government’s own estimates, the number of residents living below the official poverty line earning less than the equivalent of $46 per month has climbed by about 40% in the last year.
The rise of major chains and internet shopping, along with rising rents, tight profit margins, and falling client numbers, has left small and medium-sized businesses struggling to stay afloat, unable to compete with big franchisees’ bulk-buying prices.
Ali Donyaie, 71, who established his grocery business in Tehran more than four decades ago, said, “It’s not economical to run the shop anymore.”
Not only is the price of commodities at issue, but also the livelihoods of thousands of cashiers, fruit merchants, and meat cutters. The layoffs will spread throughout the economy, according to Saeed Derakhshani, the chairman of Iran’s supermarkets union, causing even more hardship for those who can only barely afford a few necessities.
“A retailer will perish,” Derakhshani predicted. “What happens to their company, their family, and their employees?”
Is Iran’s inflation rate high?
According to the Statistical Center of Iran, Iran’s annual inflation rate in 2021 was 43.4 percent, but President Ebrahim Raisi is committed to lower inflation in 2022, as excessive inflation damages the economy and can fuel political instability. The regime’s capacity to control pricing is influenced by a number of issues, the most important of which are US sanctions, which have restricted the regime’s access to hard money and worldwide trade.
The 12-month average inflation rate for 2021 was 43.4 percent, up 12.9 percentage points from 30.5 percent in 2020. The global recession of 2020 and the widespread inflation of 2021, both brought on by the COVID-19 pandemic, contributed to the global and Iranian inflation rate instability.
However, due to a variety of circumstances, including weaker US sanctions enforcement and increasing Iranian export revenue, inflation in Iran has decreased slightly in recent months. Despite this, the Raisi administration is optimistic that the worst of the inflation may be passed. Raisi has made inflation control a cornerstone of his economic policy, and has submitted a contractionary budget to the Majles, or parliament, as a result.
Tehran’s capacity to control inflation in 2022, however, is largely dependent on the outcome of continuing nuclear talks, which could result in the easing of US sanctions, as well as the regime’s fiscal and monetary discipline. The penalties have a number of effects on inflation. Sanctions, for starters, limit Iran’s ability to export commodities and create income. Second, sanctions raise the cost of Iranian imports. Third, they restrict Tehran’s access to export revenue and foreign exchange reserves.
Furthermore, if sanctions are maintained, they imply that more trouble is on the way, raising market inflation expectations. By addressing other issues that drive up prices, the Raisi administration may be able to reduce inflation marginally in the short term. However, unless the sanctions issue is resolved, inflation will continue to rise.
Having the financial and monetary discipline to pursue a contractionary strategy can help to keep inflation under control. Raisi may achieve this through limiting spending, reducing Iran’s fiscal imbalance, and refraining from depressing interest rates. However, this mission is more difficult than it appears, as it risks triggering a recession and pitting Raisi against powerful pressure organizations, constituencies, and ideological forces. It may cause political upheaval as a result of this. Navigating this minefield demands political and technocratic expertise, which Raisi and his team are unlikely to possess.
Increased tax income, for example, is one approach to reduce the deficit, but taxing an already destitute population is difficult and risky. Furthermore, because large politically connected players in the economy pay little or no tax, key sources of potential revenue are essentially off-limits. Various foundations, such as Astan Quds Razavi, which Raisi used to run, are among these actors. The president, who is expected to succeed Ayatollah Ali Khamenei, Iran’s 83-year-old supreme leader, is unlikely to question significant figures and institutions and force them to pay their taxes.
If Raisi is unable to obtain complete or partial sanctions relief and does not implement disciplined fiscal and monetary policies, inflation will likely linger above 40%. Alternatively, if he is successful in obtaining full or partial sanctions relief and implements a contractionary strategy during the next year, he will be able to lower inflation by the end of 2022.
For the time being, Raisi appears to be attempting to impose monetary and fiscal discipline, as well as to deploy sanctions-busting techniques to keep inflation at bay. However, Khamenei will finally decide the fate of Iranian inflation in 2022. He will be the only decider on whether or not to reach an agreement with Washington that places substantial constraints on Tehran’s nuclear program in exchange for respite from sanctions.
Where does Iran’s money come from?
Iran’s economy is a mixed economy with a significant state-owned sector. By purchasing power parity, it is the world’s 23rd largest economy (PPP). Iran’s economy is centrally planned to the tune of 60%. Although nearly 40 industries are directly participating in the Tehran Stock Exchange, it is dominated by oil and gas production. Over the last decade, the stock exchange has been one of the best performing in the world. Iran is considered a “energy superpower” since it holds 10% of the world’s proven oil reserves and 15% of its confirmed gas reserves. The presence of big religious foundations known as bonyads, which combined budgets account for more than 30% of central government spending, is a distinctive element of Iran’s economy.
The economy is strongly reliant on price restrictions and subsidies, particularly in the areas of food and energy. Contraband, administrative limitations, pervasive corruption, and other constraints stifle private-sector growth. The government’s 20-year vision (as of 2020) includes market-based reforms, which are represented in its five-year development plan (FY 2016 to FY 2021), which focuses on “a resilient economy” and “advance in research and technology.”
Oil and gas exports make up the majority of the country’s exports, accounting for the majority of government revenue in 2010.
In 2018 and 2019, the economy shrank, but a minor resurgence is projected in 2020. A COVID-19 epidemic is expected to begin in February 2020, and US sanctions were reimposed in mid-2018, resulting in increasing unemployment, inflation, a “chronically weak and undercapitalized” banking system, and a “anemic” private sector. Iran’s currency (the Iranian rial) has depreciated, and the country is rated poorly in terms of “economic freedom” and “ease of doing business.”
Because of Iran’s educated population, high human development, constricted economy, and lack of international and domestic investment, a growing number of Iranians are looking for work abroad, resulting in a large “brain drain.” Iran and the P5+1, on the other hand, achieved a nuclear deal in 2015 that lifted most international sanctions. As a result, the tourism industry benefited greatly for a short time, and inflation in the country reduced, albeit the US exit from the JCPOA in 2018 hampered economic growth and raised inflation.
Why is the Iranian economy so bad?
Iran’s Ministry of Labor has released its first official study on poverty in Iran, claiming that about a third of Iranians lived below the poverty line in calendar year 1398 (March 2019-March 2020), defined as an income of around 25 million rials per month, or over $200 at the time.
According to the Labor Ministry’s report, poverty climbed by 38 percent from March 2019-March 2020, mainly due to high inflation and rising prices of foodstuff and housing, but it did not provide a figure for 2020-2021, when inflation got even worse.
According to the survey, one-third of Iranian families were living in poverty in 2019. However, the Ministry of Finance did not release a statistic for poverty levels in March 2020-March 2021, although Donyaye Eqtesad, Iran’s top economic daily, reports that poverty is on the rise. The national currency’s value halved by 2020, implying rapid inflation of about 50%, further impoverishing the population.
However, Iranian media and scholars have claimed that the real poverty rate in 2020 would be at least 50%, implying that the middle class would be rapidly vanishing.
Since the United States withdrew from the 2015 nuclear agreement and sanctioned Iran’s oil exports in early 2018, the rial has been rapidly depreciating, thus cutting off Iran’s main source of hard currency income required to pay imports. Poverty in Iran has been continuously increasing since the revolution in 1979, but it intensified in 2018.
The poverty line establishes the bare minimum income required to make ends meet. The price of food is a major deciding factor. Generally speaking, the poorer a family is, the more money it must devote to food.
Between 2017 and 2019, 11 of the 20 poorest Iranian cities were in the province of Sistan and Baluchestan, according to Donyaye Eqtesad. In Kerman province, there were three more severely impoverished cities.
In 2019, high-income families spent 26% of their income on food, while low-income families spent 33% of their income on food. The poorest citizens in Sistan and Baluchestan province in southeastern Iran spent 50.6 percent of their income on food, according to the poverty map. In the affluent province of Gilan in the north, the figure was 25.9% in 2019.
Economist Zahra Kaviani warned in an editorial in Sunday’s edition of Donyaye Eqtesad that the rising poverty level has not spared the Iranian middle class. She claimed that the middle class has been dwindling as a result of rising poverty.
She also cautioned that children’s situations are significantly worse than adults’. Due to poverty, many students were forced to drop out of school. As online education were available during the epidemic, more children dropped out due to a lack of funds for tablets and smartphones. Kaviani also claimed that children’s IQ levels had been lowered as a result of inadequate nutrition.
According to Kaviani, both adults and children’s caloric consumption in Iran has fallen below the daily minimum of 2100 calories. She went on to say that in 2020, an increasing percentage of children will be malnourished, which will damage their IQ and learning capabilities.
As chronic illnesses become more common among children, Kaviani cautioned that Iran’s country will have to deal with the high cost of poverty. She told Iran’s new administration that the only way to avoid more losses is for the country’s economy to recover.
Economists had told President Raisi in recent weeks that improving Iran’s economic situation would be impossible without resolving the country’s concerns with the US in order to relax sanctions.
What causes inflation, exactly?
- Inflation is the rate at which the price of goods and services in a given economy rises.
- Inflation occurs when prices rise as manufacturing expenses, such as raw materials and wages, rise.
- Inflation can result from an increase in demand for products and services, as people are ready to pay more for them.
- Some businesses benefit from inflation if they are able to charge higher prices for their products as a result of increased demand.
In Iran, what is the poverty rate?
In 2018, the poverty rate in Iran was 0.5 percent, up from 0.4 percent the previous year. What is the current poverty rate? The fraction of the population living on less than $1.90 per day at 2011 international prices is known as the population below $1.90 per day.
Who has the world’s greatest inflation rate?
Venezuela has the world’s highest inflation rate, with a rate that has risen past one million percent in recent years. Prices in Venezuela have fluctuated so quickly at times that retailers have ceased posting price tags on items and instead urged consumers to just ask employees how much each item cost that day. Hyperinflation is an economic crisis caused by a government overspending (typically as a result of war, a regime change, or socioeconomic circumstances that reduce funding from tax collection) and issuing massive quantities of additional money to meet its expenses.
Venezuela’s economy used to be the envy of South America, with high per-capita income thanks to the world’s greatest oil reserves. However, the country’s substantial reliance on petroleum revenues made it particularly vulnerable to oil price swings in the 1980s and 1990s. Oil prices fell from $100 per barrel in 2014 to less than $30 per barrel in early 2016, sending the country’s economy into a tailspin from which it has yet to fully recover.
Sudan had the second-highest inflation rate in the world at the start of 2022, at 340.0 percent. Sudanese inflation has soared in recent years, fueled by food, beverages, and an underground market for US money. Inflationary pressures became so severe that protests erupted, leading to President Omar al-ouster Bashir’s in April 2019. Sudan’s transitional authorities are now in charge of reviving an economy that has been ravaged by years of mismanagement.
Is Iran a Muslim nation?
Due to widespread persecution by Arab Muslims under the recently arrived Rashidun Caliphate, the Muslim conquest of Persia (633654 CE) brought the Sasanian Empire to an end and started the fall of Zoroastrianism among the Iranian peoples. Except for a brief period during the Mongol invasions and the foundation of the Ilkhanate in the 13th century, Islam has been the official religion of Iran (also known as “Persia”) from its establishment after the 7th-century conquest. The medieval Persian monarchy came to an end with the Islamic Revolution of 1979, and Iran became an Islamic republic.
Prior to the Muslim conquest, mainland Iranians primarily practiced Zoroastrianism, but there were also large and thriving Jewish and Christian communities, particularly in the northwestern, western, and southern provinces of Iranprimarily Caucasian Albania, Asoristan, Persian Armenia, and Caucasian Iberia. In what was then eastern Iran, such as the provinces of Bactria and Sogdia, a considerable proportion of Iranians practiced Buddhism. Despite significant resistance, there was a slow but steady shift of the populace into Islam following the Muslim conquest. When Islam was originally introduced to Iranians, the nobles and city inhabitants were among the first to convert; the peasantry and dehqans, or land-owning magnates, converted more slowly. The majority of Persians had converted to Islam by the 10th century. The achievements of past Persian civilizations, on the other hand, were not lost, but were absorbed to a large extent by the emerging Islamic polities.
According to a Pew Research Center poll conducted in 2013, 85 percent of Iranian citizens believe religious figures should have influence in politics. According to the poll, 83 percent of Iranian Muslims want Sharia law.
According to some estimates, nearly all of Iran’s 82 million inhabitants are Muslims, with 90 percent adhering to Shia Islam and the Twelver branch being followed by the majority. Another 10% follow Sunni Islam, the majority of whom are Kurds, Achomis, Turkmens, and Baloch from the northwest, northeast, south, and southeast, respectively. According to a World Values Survey conducted in 2020, 96.6 percent of Iranians believe in Islam. However, according to a 2020 poll by the GAMAAN institute, Iran’s religiosity has declined sharply, with only 32% of Iranians currently identifying as Muslims.
Islam in Iran can be divided into two periods: Sunni Islam reigned supreme from the 7th to the 15th centuries, and Shia Islam reigned supreme from the 16th to the 21st centuries. In the early 16th century, the Safavids made Shia Islam the official state religion and vigorously proselytized the faith through forcible conversion. By the mid-seventeenth century, most people in Iran, Iraq, and the territory of the modern-day Republic of Azerbaijan had converted from Sunni to Shia, an association that has persisted. With the establishment of a state-sponsored Shia clergy in Iran in the ensuing centuries, a synthesis was forged between Iranian culture and Shia Islam that permanently stained each with the tincture of the other.
What are the reasons behind US sanctions against Iran?
In response to Iran’s continued illicit nuclear activities, the US and other countries have imposed unprecedented sanctions in order to punish the country and prevent it from engaging in prohibited nuclear activities in the future, as well as persuade Tehran to address international concerns about its nuclear program. The United States, European Union member states, Japan, the Republic of Korea, Canada, Australia, Norway, Switzerland, and others have put in place a strong, interlocking matrix of sanctions measures relating to Iran’s nuclear, missile, energy, shipping, transportation, and financial sectors, acting both through the United Nations Security Council and regional or national authorities. These measures are intended to: (1) prevent the transfer of weapons, components, technology, and dual-use items to Iran’s prohibited nuclear and missile programs; (2) target specific sectors of the Iranian economy that are relevant to its proliferation activities; and (3) encourage Iran to engage constructively in the “E3+3 process” to fulfill its nonproliferation obligations through discussions with the US, China, France, Germany, the United Kingdom, and Russia. These countries have stated that if Iran complies fully with its international nuclear responsibilities, it will be treated as a normal non-nuclear-weapon state under the Nonproliferation Treaty, and sanctions will be lifted.
The EU enacted a new package of restrictive measures against Iran on October 16, 2012, as announced in Council Decision 2012/635/CFSP. These sanctions are aimed at Iran’s nuclear and ballistic missile programs, as well as the Iranian government’s earnings from them.
The EU has also approved Council Regulation (EU) No 359/2011 of 12 April 2011 in response to the deteriorating human rights situation in Iran. The Annex III list of equipment that could be used for internal repression and related services (e.g. financial, technical, brokering) as well as internet monitoring and telecommunications equipment and related services has been added to this rule by Council Regulation (EU) No 264/2012.
The International Atomic Energy Agency (IAEA) expressed “severe concerns about possible military elements to Iran’s nuclear program” in November 2011, with signs that “certain activities may still be occurring.”
The sanctions, according to the US, are not intended to overthrow the Iranian regime, but rather to persuade it to change a number of policies.
Is Iran a decent place to visit?
Iran is ranked 118th out of 153 countries in the 2020 study, just above the “unhappiest” quintile. The index’s scores are rated among the countries, both overall and by category.