Middle East Bank Tracks Inflationary Trends in Q3 Report

EghtesadOnline: The point-to-point consumer price inflation rate reached 8.4% in the seventh month of the ongoing fiscal year (Sept. 23-Oct. 22) following its downward trend from the beginning of summer, but reversed course and rose by 1.6 percentage points to 10.0% at the end of the year’s third quarter.

News ID: ۷۴۴۷۷۵

30 January 2018

The average annual inflation rate at the end of each month, which had turned single-digit again at the end of summer, was stable during fall and reached 10% at the end of that season, the Middle East Bank mentioned in its latest quarterly report.

The point-to-point producer price index inflation rate reached 11.6% in the seventh month following its upward trend from the middle of spring, but then reversed course and fell by 0.9 percentage points to 10.7% at the end of Q3.

Given the effect of PPI inflation on CPI inflation, part of the increase in point-to-point CPI inflation rate at the end of fall could be attributed to the upward trend of PPI inflation rate in recent months. Accordingly, a further rise in the point-to-point CPI inflation rate in the remainder of the year is expected. The accompanying graph depicts the annual and point-to-point CPI and PPI inflation rates from the beginning of the fiscal 2016-17 to the end of fall this year, Financial Tribune reported.

As shown there, the point-to-point PPI inflation rate has exceeded that of CPI from the middle of summer, indicating that production cost has been increasing faster than retail prices.

Point-to-point inflation rate of tradable goods followed a downward trend through the end of summer and reached 8.5%, but then reversed course and rose by 1.7 percentage points to 10.2% in the eighth month, partly because of the rial’s depreciation against foreign currencies since the beginning of summer.

As for non-tradable goods, the point-to-point inflation rate registered 8% at the end of the seventh month following its downward trend, but again rose and reached 8.9% in the eighth month.

Based on the latest Central Bank of Iran’s report on CPI inflation, out of the 12 main groups in the consumption basket in the third quarter, the point-to-point inflation rates in nine groups rose but fell in the other three groups.

The rise in point-to-point inflation rates of “housing, water, electricity, gas and other fuels” and “food and beverages”, the top two in the consumption basket in terms of weight, were the main contributors to the rise in the point-to-point CPI inflation rate from 8.4% at the beginning of fall to 10% at the end of that season. The accompanying table exhibits the point-to-point CPI inflation rates in the major groups of basket of goods and services during summer and fall.

The Statistical Center of Iran also released CPI inflation rates at the end of Q3 based, for the first time, on income deciles.

According to its report, the average annual CPI inflation rate in the consumption basket of goods and services registered 8.8% for the lowest income decile, and 7.6% for the top income decile. The difference between the two rates is due to the difference in their consumption baskets, including the higher weight of food in the consumption basket of the poor and the higher inflation of food items.

Note that with the recent updating of the base year in CPI calculations, the weight of foods in the consumption basket has fallen while that of housing has risen.

As mentioned earlier, because of the upward trend of PPI inflation rate in recent months, the CPI inflation rate is expected to rise soon and probably turn double-digit.

Majlis Research Center and the IMF have projected the end-of-year annual inflation rates of 10.5% and 9.9%, respectively.