Iran FX and Inflation Report - Bahman 1399 (January 20 - February 18)
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The Iranian calendar month of Bahman (January 20 – February 18) saw an uptick in inflation, driven in part by an increase in both the free market and NIMA exchange rates. In particular, the food prices registered a significant monthly increase.
The FX market began the period with rates of IRR 229,500 and IRR 229,234 in the free market and the NIMA market respectively, with both rates increasing over the course of the month. The free market exchange rate increased 13.29 percent, while the NIMA exchange rate ended the month 2.67 percent higher. The spread between the two rates widened to end the month at IRR 24,653.
According to Consumer Price Index data released by the Statistical Centre of Iran (SCI), the general national Consumer Price Index (CPI) indicates a monthly inflation rate of 2.49 percent. Good prices rose 3.35 percent while prices for services increased 1.03 percent. A key cause of higher the highly monthly inflation rate was the 5.46 percent increase in food prices, with the sub-category for sugar, jam, honey, and sweets seeing a significant 11.8 percent rise in food prices.
While some of these increased may be attributable to the forthcoming Iranian new year holiday, Nowruz, Asadollah Kargar, the head of Iran’s fruits and vegetables sellers union, stated that the main reason for the price jump of fruits and vegetables was increases in the price of production factors such as pesticides, fertilisers and transportation.
Based on calculations of the Economic Research Department of the Tehran Chamber of Commerce, Industries, Mines and Agriculture (TCCIM) if the monthly inflation of the final month of the year 1399 falls somewhere between 1 to 4 percent, annual inflation will be somewhere between 36.3 to 38 percent, a total which is 12 to 16 percent higher than the inflation rate target set by CBI.
The governor of the Central Bank of Iran (CBI), Abdolnasser Hemmati, stated in the first week of Bahman that cash transactions between importers and exporters in the NIMA system were flowing well and reported that on average more than USD 150 million of foreign exchange was supplied in NIMA on a daily basis. Hemmati pointed to positive news regarding oil exports from as a signal for future stability in the FX market.
According to Hemmati, since the beginning of the year 1399, USD 9.2 billion worth of foreign currency has been provided by the CBI at the exchange rate of IRR 42,000 for the importation of essential goods such as wheat, corn, medicine, and medical equipment. Additionally, he explained that the average daily supply of foreign currency in NIMA in the month of Bahman, which has been more than USD 80 Million, is almost double the daily transactions of foreign currency and there is more supply than demand.
Over the past few months, there have been renewed debates over the elimination of the official exchange rate of IRR 42,000 as well as unification of the exchange rates. Hemmati in an interview expressed hope that with an increase in oil exports the FX market will be stabilised in the future. He supported unification of exchange rates, but also raised some concerns. He explained that elimination of the official exchange rate has to be conducted prudently in order to avoid price shocks that would hurt consumers. Hemmati also discussed the target annual inflation rate of 22 percent and stated that the targeted rate was based on an assumption that the NIMA exchange would stabilise around IRR 170,000. He suggested that the current inflation rate is due to the influence of the exchange rate on inflation expectations.
