Single-Digit Inflation Expected for 2nd Consecutive Year

EghtesadOnline: For the first time in almost half a century, 46 years to be precise, the Iranian economy is expected to register a single-digit inflation rate for two years in a row.

News ID: ۷۴۵۰۶۶

26 February 2018

According to the latest report by the Central Bank of Iran, the overall goods and services Consumer Price Index for urban areas (using the Iranian year to March 2017 as the base year) stood at 113.4 in the Iranian month of Bahman (Jan.21-Feb. 19, 2018), which indicates a 0.9% increase compared with the previous month.

The Persian economic daily Donya-e-Eqtesad believes that the monthly CPI increase of less than 4.3% in the final month of the year would keep the average 12-month inflation rate below 10%.

Statistics show that the average of monthly inflation rate registered in the first 11 months of the current Iranian year (started March 21, 2017) was 0.6%. It was 0.8% for the 11 months of last year, Financial Tribune reported.

Another important criterion to assess the inflation rate is monthly fluctuations of CPI compared with the similar month of the previous year or point-to-point inflation rate. The point-to-point inflation rate took three different courses this year.

From Farvardin (March 21-April 20) to Mehr (Sept. 23-Oct. 22, 2017), it dropped from 12.7% to 8.4%. Since the decline in bank deposit interest rate in Shahrivar (Aug. 23-Sept.22, 2017), it increased to 10%.

The last two months saw a downward trend in point-to-point inflation rate: The index registered a year-on-year increase of 9.7% and 9.4% in Dey (Dec. 22, 2017-Jan. 20) and Bahman (Jan.21-Feb. 19), respectively.

Donya-e-Eqtesad predicts that if the monthly CPI rise is less than 1.7% in Esfand (Feb. 20-March 20), the index will post a year-on-year increase of 8%.

Although experts and economists believe monthly inflation rates give more updated information on weighted average of prices of a basket of consumer goods and services, officials tend to highlight the annual inflation rate in their press briefings.

The annual inflation rate is made up of the 12 most recent monthly rates. So when a small or negative monthly rate is replaced by a large positive monthly rate, we can see a significant jump in the annual inflation rate in a single month. Conversely, if a large monthly inflation rate is replaced by a smaller one, inflation will decrease.

The average goods and services CPI in the 12 months ending Feb. 19, which marks the end of the Iranian month of Bahman, increased by 9.9% compared with last year’s corresponding period. The 12-month inflation rate for the final month of the current year, Esfand, is highly likely to stay in single-digit territory.

Inflation rates higher than 10% will not make a comeback unless monthly rates go beyond 4.3%. This comes as the last time monthly rates broke past that level was in Jan. 20-Feb. 18, 2013, when it posted an increase of 5.3%. Although the final month of the Iranian year, Esfand, is generally known to be an inflationary month, the rate is highly unlikely to exceed 4% this month. Last Esfand, the inflation rate reached 2.1%.

The average annual CPI registered for the last Iranian year stood at 9%.

Inflation in Iran reduced to a single digit for the first time after about a quarter century in June 2016.

In its latest “Iran’s Economic Outlook”, the World Bank predicted that Iran’s inflation rate would reach 11.5%, 10.9% and 10.6% in 2017, 2018 and 2019 respectively. The International Monetary Fund also forecast that Iran’s inflation rate will stand at 10.5% and 10.1% in 2017 and 2018 respectively.

According to the CBI report, the increase in monthly CPI of the group of “entertainment and cultural activities” was the biggest of all 12 groups of goods and services i.e. 2%, while the inflation rate of -0.1% was registered for “clothing and shoes” group—the smallest rate among all groups.

The point-to-point CPI increased 11.5% for “Food and Beverages”; 1.8% for “Tobacco”; 5.4% for “Clothing and Shoes”; 8.8% for “Housing, Water, Electricity and other Fuels” and “Furniture and Home Appliances”; 8.7% for “Health and Treatment”; 6.8% for “Transportation”; 1.7% for “Communications”; 11.4% for “Entertainment and Cultural Activities”; 14.1% for “Education”; 11.5% for “Restaurants and Hotels”; and 12.7% for “Other Goods and Services”.