Tyranny of numbers

New data show Iran’s economy is improving as nuclear negotiations reach a critical stage

Posted in General by Djavad on August 24, 2022

If you are a regular reader of this blog, you are not surprised by the inflation data for Mordad (the Iranian month ending August 21). As in previous cost-push price increases, inflation spiked three months ago following the removal of food subsidies, but in the last two months it has moderated. Last month prices rose by under 2 percent (annual rate=26.3%), much lower than in June and July. Prices will moderate further if a nuclear deal is reached and sanctions ease.

Data from the survey of expenditures of incomes for the Iranian year 1400 (March 2021-March 2022) published by the Statistical Center of Iran (SCI) last week offers more insight into how living standards changed in 2021. Per capita expenditures in real terms increased by 7.1% in rural and 10.1% in urban areas (my calculations from the raw survey data). Yes, inflation was very high — average prices rose by 42% in rural and 36% in urban areas, and food prices rose by about 51% — but incomes rose by even more, 53%. Real per capita expenditures (rials per person per day in 2021 prices) for the last few year are below:

Table 1. Real per capita expenditures per person per day in 2021 rials.

RuralUrbanIran
2017474419847279752533
2018475004769039694903
2019406295740520657666
2020389079716248636232
2021416837790786700467

Survey data corroborate what we know from the national accounts data, also published by the SCI. They show that GDP rose by 4.3% last year, buoyed by a 9.8% increase in oil and gas extraction. Together, these data provide convincing evidence that the economy has finally turned around after three years of decline caused by Trump’s maximum pressure campaign.

Survey data allow me to estimate poverty rates as well. Using the international poverty line for upper middle income countries of $5.50 per person per day in 2011, my estimates are in the table below. In 2021, the poverty rate for urban households was 6.5%, down from 9.2% the year before but still above its level in 2017 before Trump sanctions took effect. Poverty in rural areas has also declined but less so, and it is still very high. The poverty rate for the country as a whole is now below 10%.

Table 2. Percent below the international poverty line.

RuralUrbanIran
201714.905.007.50
201815.308.009.80
201921.508.0011.30
202024.609.2012.90
202120.306.309.70

I should remind readers, as I always do when I work with international poverty lines, that they are lower than those used in official reports in Iran. However, the trend is unaffected by this difference. If you use the same poverty line (in real terms) on survey data from different years you will observe the same pattern –rising from 2017 to 2020 and falling in 2021. This result does not depend on what poverty line you use.

I prefer to use the international rates because outside observers implicitly compare Iran with other countries. In an interview on CNBC on Sunday (8/21/22), the host prefaced his question to me about whether Iran was showing flexibility because it was doing very badly, by saying that one out of three Iranians are poor. I mentioned that by international standards poverty is much lower (one in 10 as it turns out now) but he did not seem interested. In fact, the part of the video in the above link does not include this part of my remarks.

These data clearly show that, as of a few months ago, living standards in Iran are not rapidly deteriorating as media chatter would like us to believe. If it has done much worse in the last six months, we do not know. But, at least for the poor, I doubt this very much because of the cash transfers that have been paid since April to individuals to offset the higher cost of food. To get an idea how far off people are when they speak of hunger in Iran, 90% of the population get monthly cash that can buy 10-13 loaves of (lavash) bread per day per person.

The vitriol on the social media by Iran hawks against Biden’s attempt to revive the JCPOA is in large part driven by the clearly false belief that Iran’s economy is getting worse by the day and Biden is wrong not to wait. The picture I see in these data is that Iran is approaching the JCPOA negotiations having proved wrong those who encouraged Trump to ditch the deal in 2018 expecting economic collapse and a quick return of Iran to the negotiating table.

Social media inside Iran have also been mostly expressing very negative views of the economy. Many well-meaning critics think that living standards have been falling continuously because prices have been rising fast. This is the widely-shared but mistaken belief that every price increase is a decline in purchasing power. What this thinking ignores is that wages are also prices and rise with inflation, not always and not for everyone in tandem, but they rise. The value of survey data, which report actual incomes and expenditures, is to correct what economists call money illusion.

8 Responses

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  1. […] and even Raisi. Despite social protests and inflation rates as high as 54 percent, Iran seems to be weathering its current economic crisis, in part because oil exports in June reportedly reached 950,000 bpd, […]

  2. […] and even Raisi. Despite social protests and inflation rates as high as 54 percent, Iran seems to be weathering its current economic crisis, in part because oil exports in June reportedly reached 950,000 bpd, […]

  3. Ben Yosef said, on August 29, 2022 at 2:52 pm

    Hi. Thank you for your analysis. Could you please explain the method of obtaining the survey data? Was it people going from home to home or govt provided or other methods? Thank you.

    • Djavad said, on August 29, 2022 at 3:14 pm

      Yes. Traditionally, they visited the home of the households randomly selected and asked many questions. They interviewed about 2000 households each month across the country. Since 2020, Covid may have forced them to do some phone interviews, but I am not sure how widespread is that practice.

      From: Tyranny of numbers comment-reply@wordpress.com Date: Monday, August 29, 2022 at 2:52 PM To: Salehi-Isfahani, Djavad salehi@vt.edu Subject: [Tyranny of numbers] Comment: “New data show Iran’s economy is improving as nuclear negotiations reach a critical stage”

  4. Mohamadreza Yavari said, on August 24, 2022 at 7:26 pm

    absolutely.I have felt exactly the trend in iran and what you said in this essay👏👏👌👌

    • Djavad said, on August 24, 2022 at 8:05 pm

      Good to hear, Thanks!

      From: Tyranny of numbers comment-reply@wordpress.com Date: Wednesday, August 24, 2022 at 7:26 PM To: Salehi-Isfahani, Djavad salehi@vt.edu Subject: [Tyranny of numbers] Comment: “New data show Iran’s economy is improving as nuclear negotiations reach a critical stage”

  5. Kaveh said, on August 24, 2022 at 1:55 pm

    What is the number for income/capita/month for 2022 below which one fall under the poverty line?( this was $5.50 in 2011)

    • Djavad said, on August 24, 2022 at 5:14 pm

      About $6.20 in 2020. Probably $7 in 2022.

      From: Tyranny of numbers comment-reply@wordpress.com Date: Wednesday, August 24, 2022 at 1:55 PM To: Salehi-Isfahani, Djavad salehi@vt.edu Subject: [Tyranny of numbers] Comment: “New data show Iran’s economy is improving as nuclear negotiations reach a critical stage”


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