Iran Housing Sector Acts as Brake on Runaway Inflation

EghtesadOnline: The point-to-point inflation rate of the housing sector was significantly lower than that of other sectors during Mehr, the seventh month of the current Iranian year that ended on Oct. 22, recent data released by the Central Bank of Iran show.

News ID: ۷۴۶۲۱۳

12 November 2018

Figures disclosed by the monetary regulator on its official website indicate that point-to-point inflation reached 36.9% during the aforesaid month.

The overall Consumer Price Index (using the Iranian year to March 2017 as the base year) stood at 148.4 in Mehr, indicating a 4.6% increase compared with the previous month.

The average CPI in the 12 months ending Oct. 22 increased by 15.9% compared with last year’s corresponding period, according to Financial Tribune.

However, in the same month, the point-to-point inflation rate of the housing sector was registered at 12.8% by CBI, considerably lower than other sectors. The sector's month-on-month inflation was put at 0.9%.

The housing sector, especially in Tehran, is facing another bout of recession due to continuous price hikes that have significantly lowered people's purchasing power. The rise in prices has been coupled with a notable decline in the number of home deals in many of Iran's 31 provinces during the current Iranian year that began in March.

Iran's housing sector exited its longest period of recession in recent memory, lasting for more than five years just about 10 months ago. That recession is back in sight.

CPI is reported by the central bank in 12 major groups, each with their own weight due to their share in household expenses. The housing sector has the most weight with 37%, which share has increased in recent months.

In fact, during the seventh month of the current year, the housing sector acted as an anchor that prevented overall point-to-point inflation from rising further.

The same trend was witnessed during the sixth month of the current year that ended on Sept. 22. During that month, the point-to-point inflation of the sector was registered at a relatively more stable rate of 12.3% while monthly inflation of the sector was registered at 1.5%. In fact, the sector has been one of the least fluctuating among the 12 groups under CBI review.

The housing sector is comprised of non-private housing rent costs, private housing rent costs and building renovation and services costs.

Two major views present themselves concerning the relatively lower inflation rate of the housing sector.

One is that an increase in the inflation rate of other groups reaches the housing sector with a lag and therefore the group will have increased inflation reflected in its numbers in the coming months on the back of higher raw materials prices and costs of services.

The second view is that due to a sudden increase in prices due to a declining national currency, demand also suddenly fell in the sector, leading to a relatively lower inflation rate.

The national currency rial has lost nearly two-thirds of its value since the year's opening.

However, CBI reports changes in housing expenses across all urban areas of the country. Conditions are much worse in the capital Tehran where home prices surged by a year-on-year rate of more than 80% during the seventh month of the current fiscal year.