Iran Inflation on Downtrend

EghtesadOnline: The Statistical Center of Iran has published the annual Producer Price Index data from March 2012 to March 2016.

News ID: ۷۳۷۱۸۵

26 September 2016

The data covering four fiscal years show the sharp drop in inflationary pressures from March 2014 onwards, as the central bank’s inflation countermeasures kicked in and global commodity prices dipped.

Producer prices were rising at around 27% from March 2012 to March 2014. As commodity prices plummeted, the government slowed fiscal spending and monetary policy, while PPI climbing rate fell to 14.4% for 2014-15 fiscal year. PPI dipped to 3.8% in 2015-16, as inflationary expectations fell after Iran reached a nuclear deal with world powers that promised to lift sanctions against its economy.

The Central Bank of Iran’s latest report on inflation shows average PPI in the 12-month period ending August 21, which marks the end of the Iranian month of Mordad, rose 3.3% compared with last year’s corresponding period. The index registered a year-on-year increase of 2.6% compared with the similar month of last year.

PPI (using 2011 as the base year) stood at 221.7 in Mordad, indicating a 0.7% growth compared with the previous month. The CBI put the average PPI inflation for the preceding month (Tir) at 3.5% with a year-on-year increase of 2.7%.

The importance of PPI lies in its predictive content for the future pattern of Consumer Price Index. Changes in PPI are usually reflected in CPI within a short period of time.

The SCI data also show that the drop in producer prices was mainly dampened by the slowdown in the global economy and the glut in crude oil markets that sent commodity prices, especially oil, to record lows.

Oil, which suffered the sharpest drop among commodities, led to a decline in the energy sector’s PPI. Producer prices in the energy sector actually contracted by 8.2% in 2015-16 after they had risen by 25% in the previous year.

Other commodities also fell during the period dampening producer prices in the mining and industrial sectors. PPI for mines and industries also contracted during the same period by 3.3% and 0.5% respectively.

Though agricultural production costs have grown for the last four fiscal years, they witnessed the sharpest decline compared to other sectors, from well over 40% until March 2014 to 3.8% and 1.3% in the following two fiscal years.

The cost of production in the services sector, however, has proven more persistent in its climb. Producer prices for the service sector have risen steadily during the four-year period. PPI rose at 16.9%, 21.2%, 16.2% and 11.4% annually in the corresponding periods.

The most recent consumer price data show that inflation for the current fiscal year will drop below 10% and the trend is likely to continue. The slowdown in global inflation, Iran’s improved international relations after the nuclear deal and low consumer spending will continue to suppress producer prices. However, some analysts have warned that the Central Bank of Iran’s continuous rate cutting will increase inflationary pressures in future, according to Financial Tribune.

Shahrivar Inflation at 8.3%

The goods and services Consumer Price Index for urban areas increased 8.3% in the 12-month period ending September 21, which marks the end of the Iranian month of Shahrivar, compared with last year’s corresponding period, according to the Statistical Center of Iran’s latest report on CPI inflation.

The SCI put the preceding month’s inflation rate at 8.7%. The overall consumer price index (using 2011 as the base year) stood at 231.3 in Shahrivar, indicating a 0.2% increase compared with the previous month and a year-on-year increase of 6.7% compared with last year’s similar month.

The year-on-year inflation, considered by many as the canary in the coalmine for average inflation, was showing an upward trend until Shahrivar, since it bottomed at 6.8% in Khordad (the Iranian month ending June 20). It continuously went up hitting 9.4% for the month ending Aug. 21, giving rise to speculations that inflation would climb in the coming months.

However, the latest year-on-year inflation as reported by the SCI (6.7%) sees a 0.6% decrease compared to the 7.4% for the last month. This should allay concerns of a rebound of a double-digit inflation, indicating that the rate is likely to continue to drop in the months to come.

Inflation in the rolling 12 months ending June 20, which marks the end of the Iranian month of Khordad, dropped to 9.7%, the Central Bank of Iran reported. It was the first time inflation fell below the 10% mark in 26 years. The last time was in 1990, when Iran was emerging from the carnage of the 1980-88 Iraq-imposed war.