Tyranny of numbers

Two pieces of positive economic news were published last week, continued economic growth last fall and lower inflation for the Iranian month of Bahman that ended on February 20. You would think that days before the elections for the parliament and the Assembly of Experts on March 1, they would attract attention and scrutiny. But in Iran public opinion about the economy and elections have moved beyond facts and data. Public opinion because people dismiss official news about the economy as propaganda, and elections because, thanks to heavy vetting, only one side appears to have a chance of occupying the most seats in the two assemblies.

But, at a deeper level, Iranians generally pay less attention to economic growth than to inflation and the exchange rate. Inflation is running higher than 40% for the year, and the rial has lost about 15% of its value in the past month, foretelling more price increases. Inflation and the exchange rate occupy the imagination of Iranians even though their impact on their real consumption and living standards is uncertain. Growth of the GDP, on the other hand, which is closely connected with living standards, is ignored. To be sure, both inflation and the exchange rate have behaved wildly since 2011, when sanctions hit the country, and have added huge uncertainty to ordinary lives. The salaried middle class has especially low tolerance for inflation because it has to wait for months for its income to catch up with rising prices. Furthermore, its demand for dollars — for education, travel, luxury imports, and emigration — makes its fortunes more directly related to the exchange rate than the size of the GDP.

Yet the estimates of economic growth published last week by the Statistical Center of Iran (SCI) are hard to ignore. They show the economy continuing to grow at a robust rate for the past three quarters of the Iranian year 1402 (21 March 2023- 20 December 2023), at 6.7% annual rate. For the Gregorian year 2023, growth was 5.9%. As for inflation, it fell to half its value in the previous month, down from 2.6% to 1.3% month on month (annual rate of 17.4%).

For a country under heavy sanctions this is quite impressive, even though some of the credit goes to rising oil exports. It is also noteworthy because it provides further evidence that US sanctions are failing in bringing Iran’s economic growth to a halt, or to change Iran’s foreign policy. What they have accomplished is to slow its growth and make life much harder for the average Iranian. (These are the points we make in our new book, How Sanctions Work, with Narges Bajoghli, Vali Nasr, and Ali Vaez, published this month by Stanford University Press.)

Not that it matters for how votes are cast tomorrow, but it is a sign of the times that economic data, like beauty, is in the eyes of the beholder. An Iranian news site (link in Persian) managed to invert the news of decline in inflation by using a different measure of inflation — the change in CPI from the same month a year ago — with the headline, “Rising inflation in Bahman”. A news site outside Iran wrote of the “accelerating [emphasis added] loss of purchasing power for the average citizen,” a conclusion it reached after converting the value of Iran’s output for an entire year to US dollars using the free-market exchange rate that fluctuates daily. This is a common error I see a lot in the case of Iran because it has multiple exchange rates and its free market rate is unstable. Luckily, it can be easily avoided by using PPPs, about which I wrote recently on this blog.

I do not know of any other country for which completely different interpretations exist for the same data. It is easy to bemoan the lower standards of evidence applied to economic reporting on Iran. It is also easy to excuse the public for ignoring official data as they go to the polls even when the data is reliable by international standards, as measures for inflation and GDP are. If the authorities do not take elections seriously enough to allow more competition, why should the public take seriously the official data on which they are supposed to cast their vote?