Iran FX and Inflation Report - Azar 1399 (November 21 - December 20)
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The Iranian calendar month of Azar (November 21 – December 20) saw relative stability in both the NIMA and free market exchange rates. The monthly inflation rate was the lowest in the past six months and a drop in the price of consumer durables contributed to a negative monthly inflation rate for the households in the highest income decile.
The foreign exchange rates in the month of Azar hovered around an average of IRR 256,443 and IRR 258,204 in the NIMA and free markets respectively, making the average spread between the two rates just IRR 1760, the lowest monthly average spread since the adoption of the multiple exchange rate system in 2018. The free market began the period with a rate of IRR 260,500, went to as low as IRR 248,500 in the first week, hit a high of IRR 264,500 in the third week, and ended the period at IRR 257,200. The NIMA rate, on the other hand, began the period at IRR 258,006, went to as high as IRR 260,022, hit a low of IRR 251,176 mid-period, and thereafter in an upward trend ended the period at IRR 258,593. The average daily change in the NIMA rate was around zero and in the free market rate -0.04 percent. The highest spread in this period was IRR 10,122 on December 9, which is still lower than the average spread over the past 12 months.
According to the data released by the Statistical Centre of Iran (SCI), the inflation in the price of goods and services dropped to its lowest rate over the past six months, with a 2.04 percent increase in the general Consumer Price Index (CPI), 0.82 percent in the services CPI and 2.73 percent in the goods CPI. Across different categories of goods, there was a 4.44 percent decrease in the price of durable goods, an increase of 3.73 percent in the price of semi-durables and, an increase of 4.41 percent in the price non-durables.
Inflation in food and healthcare prices also slowed when compared to the prior month. The consumer price index for healthcare rose 1.78 percent. Food inflation rose 4.98 percent. Food inflation remains higher than inflation in the prices of non-food goods, with sustained and significant price increases of 10.3 percent in milk, cheese ,and eggs, 10.4 percent in cooking oil, and 9.7 percent in fruits.
Additionally, there was a price decrease of 3.6 percent in the transportation group, which includes the price of automobiles. These could explain the significant difference between the inflation rates experienced by the highest and lowest income deciles inflations. The weight of food is higher in the consumer basket of lower expenditure deciles while transportation has a larger weight in the basket for higher expenditure deciles.
Writing on Instagram, Iranian economist, Teymur Rahmani, has stated that the easing inflation in the month of Azar shows that high inflation in the Iranian calendar year of 1399 (beginning March 2020) has been mainly driven by inflation expectations stemming from currency depreciation . He observes that there was no significant change in liquidity in the month of Azar, meaning that the lower inflation rate cannot have resulted from changes in liquidity in the short-run.
In their latest monthly report, the Economic Research Department of Tehran Chamber of Commerce, Industries, Mines and Agriculture (TCCIM) forecasts this year’s inflation, with an assumed average monthly inflation of between 1-4 percent in the next three months of 1399. [AH1] If this assumption holds, annual inflation will be between 35.6 and 38 percent—higher than both the World Bank’s and the International Monetary Fund’s forecasts.
Peyman Ghorbani, Vice Governor for Economic Affairs at the Central Bank of Iran (CBI), explained that the 12-month inflation target set out this May is 22 percent with a 2 percent deviation interval. In recent statements, he highlighted that over the past months many exogenous shocks, including imposition of more sanctions, the pandemic, and the psychological impact of these shocks, impacted the price of goods and services and therefore the inflation rate. He emphasised that the main goal of the CBI is to control inflation and it would use the resources at its disposal, including foreign reserves, to that end.
