Single Digit Inflation Predicted for Iran Until March 2018

Inflation followed an uptrend after the government geared its economic policies to stimulate domestic demand by curtailing the lingering slowdown in industries and wild fluctuations in the foreign exchange market.

The rising inflation rate followed a steady decline over the preceding couple of years, but raised concerns that the figure may hit double digits this year, in what many would perceive as a blow to the economic stability President Hassan Rouhani has pledged to bring about.

“The government is planning to boost manufacturing and create jobs this year, but it does by no means want to give rise to runaway inflation. Our estimate is that a tight rein will be kept on inflation," Mirshojaeian told ISNA.

“Perhaps inflation will rise 1% compared to the beginning of the year and that is because the government is committed to create a large number of jobs. Therefore, it will adopt expansionary policies,” Financial Tribune quoted him as saying.

The average inflation rate for the 12 months to March 20, 2017, which marks the end of last Iranian year, reached 9%. The figure had bottomed out at 8.6% in mid fall, which was a record low in more than a quarter century.

The latest CBI data indicate an inflation rate of 9.84% for the Iranian month ending May 21.

Many officials and economists have warned against a rebound of inflation to the double digit territory. In fact, the Economy Ministry has already predicted that the average inflation rate in the rolling year to the end of the current Iranian month (June 21) will rise to 10.4%.

Nonetheless, Mirshojaeian believes the figure will fall back to below 10%, despite short-term rises linked to seasonal effects.

He said the upward inflation during the past months has been driven by a number of factors, including higher demand during the Iranian New Year holidays in late March and the presidential vote on May 19, in which President Hassan Rouhani won a second term in office over his main rival Ebrahim Raeisi.

“Inflation witnessed a shock as a result of the election, which is not uncommon in all elections across the globe,” he said, adding that this effect becomes more profound when people see the risk of economic instability rising with the prospect of the victory of a certain candidate.

The deputy minister referred to foreign exchange rate fluctuations in the days leading up to the election and said major global currencies gained against rial for a short period, but they depreciated soon after the final tally was announced in Rouhani's favor.

According to Mirshojaeian, the expected inflationary uptick at the beginning of summer is attributed to two reasons, namely the housing sector that goes through a sale/rent peak every year around this period and rising food demand during the Muslim month of Ramadan.

"Following these shocks, prices are expected to remain stable until the end of summer," he said.

But above all, the official believes, the inflation rate will be influenced by macroeconomic policies, which helped “major parts of the economy” emerge out of recession last year, and are expected to continue this year.

“The inflation rate seems logical for now, as it allows us to increase manufacturing and create jobs, which is a public demand,” he said.