Iran FX and Inflation Report - Tir 1400 (June 22 – July 22)
Inflation rose in the Iranian calendar month of Khordad 1400 (June 22 – July 22 2021), driven in part by the appreciation of the dollar and a sharp increase in the cost of healthcare. The annual inflation rate reached a record-high 44.2 percent.
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In the FX market, the free-market rate began the period at IRR 243,000, reached a peak of IRR 253,000, then began a downward trend and ended the period at IRR 245,300. Meanwhile, the NIMA rate rose, beginning the month at IRR 209,645 and ending at IRR 224,022.
According to the data released by the Statistical Center of Iran, the consumer price index (CPI) rose to 327.4, marking a monthly inflation rate of 3.54 percent, which is the first time in the last 8 months that monthly inflation has exceeded 3 percent. Services experienced registered higher price increases than goods, with an monthly inflation rate of 4.38 percent compared to goods inflation of 3.08 percent. Under the goods category, durable goods had the highest price increase, with a monthly inflation of 3.68 percent, while the price increase in semi-durables and non-durables was 2.94 percent and 2.96 respectively. Food prices rose by the percent as in the previous month, with a slight decrease in food inflation in urban areas and slight increase in monthly food inflation in rural areas. Perhaps reflecting increased demand for health services due to the increase in COVID-19 cases in Iran, prices in the health category rose 6.29 percent, the largest monthly increase in the past 9 months. The increase in urban areas was higher than in rural areas.
A new report issued by the Ministry of Cooperatives, Labour and Social Welfare (MCLSW) analyses the inflationary environment in Iran. The report idenfities four factors that have been the main contributors to inflation. These include (1) increased liquidity, (2) the higher exchange rate, (3) inflationary expectations, which spur “fake” inflation, and (4) supply chain shocks related to the COVID-19 pandemic effecting supply and demand of certain goods. The report also includes an forecast for the 12-month inflation rate at the end of the Iranian calendar year, which concludes in March 2022. The report authors expect inflation to begin to subside, with annual inflation reaching 29.8 by the end of the period.
According to the Central Bank of Iran (CBI), during the first four months of the year 1400 USD 15 billion in foreign currency has been allocated for the importation of emergency and essential goods. During this 4-month period, the equivalent of USD 4 billion was sold in the NIMA system at the weighted average rate of IRR 218,000.
The Iranian calendar month of Tir marked the final month before the Raisi administration took office. Given the promises made by President Raisi over the course of his campaign as well as the existing fiscal deficit, Masoud Nili, a veteran economic policymaker, warned the new administration of that runaway inflation remains a major risk and urged the new administration to consider the inflationary impacts of every decision.
