Tyranny of numbers

Good news for Iran from the inflation front

Posted in Inflation, Macroeconomy by Djavad on September 23, 2019

Good economic news greets President Rouhani as he arrives in New York for the UN General Assembly this week: a declining trend of inflation.  According to the latest consumer price index data published by the Statistical Center of Iran, during the Iranian month of Shahrivar (August 21-September20, 2019) inflation reached its lowest level since Trump’s assault on Iran’s economy began 18 months ago: the CPI increased at an annual rate of just 6.1 percent.  When Trump reimposed sanctions in May 2018, inflation was quite low: 2.7 percent annually in March 2018 and rose to 126.7 percent in October.  It has  declined more or less continuously from that peak since (see graph of the 3-month moving average below). (more…)

Can Iran’s economy restructure to minimize the impact of sanctions?

Posted in General, Macroeconomy by Djavad on September 20, 2019

In a post published on Lobelog.com today, I ask if Iran’s economy is sliding.  Available data do not allow me to answer this question one way or the other, but they do undermine the claim of doomsayers that the economy is on the verge of collapse.

A lot rides on the answer to this question, however, and I do not have more to say on it here.  There is no doubt that in the standoff between Iran and the US, time is on the US side. They can wait this out for a very long time, at least as long as Iran keeps to its promise not to develop nuclear weapons.  The question is then how quickly and to what degree will Iran’s economic situation deteriorate in the next year or so.  If the economic clock for Iran runs out fast, we should expect it to resort to asymmetric responses and further instability in the Persian Gulf.  If, as the data hints, the economy is stabilizing, albeit at a lower level, Iran could decide to use the sanction years (how long?) to restructure its economy away from oil and toward domestic production.

The reforms needed to do so range from reform of education and banking systems to better management of the exchange rate.  If the government is working on a strategy to achieve all this, I do not know.  But, when the big economic news from Iran is about kicking 800,000 rich people off the cash transfer roll, I have doubts. To be bust saving about $50 million a year when the economy is losing 5-10 percentage point in lost economic growth (worth $50 billion) a year, does not make sense.

 

 

 

Is Iran’s inflation rising?

Posted in Inflation, Macroeconomy by Djavad on July 27, 2019

The most recent report on consumer prices (link in Persian) published by the Statistical Center of Iran (SCI) last week shows that prices rose faster in Tir 1398 (June 21 to July 20, 2019) than they did in the preceding two months.  Low inflation rates during Ordibehesht (roughly, May) and Khordad (June), 19 percent and 10 percent (measured annually), seemed to signal that the cost push inflation of 2018 may be working its way out of the system.  But, the sharp increase in Tir prices, 38 percent annually, three times as fast as the previous month, may suggest otherwise. The dollar in the free market responded quickly, jumping above 120,000 rials per dollar. (more…)

A note on measuring living standards

Posted in General, Inflation, Living standards, Macroeconomy, Poverty by Djavad on May 22, 2019

A few weeks ago, in this blog and in opinion pieces (here, here and here), I argued that during the three decades since the end of the war with Iraq (1988), Iran’s economic growth exceeded that of Turkey, such that by 2012, when US sanctions intensified, living standards in the two countries were very similar.  My analysis, which surprised some and angered others, is because of the particular data I used to measure GDP per capita (which I also refer to as the living standard).  GDP comparison is not rocket science but most journalists (and even many economists) often get it wrong.  So, in this post I try to explain why it is important that we use data specifically intended for such comparisons.

(more…)

Rouhani’s new budget cuts back on expenditures, big time

Posted in General, Inflation, Macroeconomy, Sanctions by Djavad on January 31, 2019

If the government of Hassan Rouhani has a plan for fighting the downward trend in Iran’s economy, the one started with the US withdrawal from the nuclear deal, it is not to be found in its proposed budget for the Iranian year 1398 (March 21, 2019 to March 20, 2020).  The budget, which may be modified by Iran’s parliament in the next few weeks, is proposing serious cuts to expenditures.   Blaming shrinking revenues from oil, the government has decided to deal with the shock of the Trump sanctions and fleeing private investment by reducing its own expenditures.  Not a surprise from a government that has made fighting inflation its top priority and jobs creation the purview of the private sector. This is reasonable logic in normal time, but not when factories are cutting back on production and employment or shutting down altogether.     (more…)

Is Iran’s inflation really slowing?

Posted in Inflation, Macroeconomy, Sanctions by Djavad on January 9, 2019

In my last blog post I suggested that Iran’s inflation may be slowing down, and the latest consumer price data from the Statistical Center of Iran (SCI) suggest that this may indeed be the case.  The Consumer Price Index (CPI) published by SCI rose by 2.6 percent for the month of Azar (November 21 to December 20), an annual rate of increase of 26 percent.  This is high by world standards but low by the standards of this summer, when in August the rate shot up to 127 percent (see Figure 1).  More importantly, it is about the same as the month before, which is why it is safe to say that calmer — not better — times are ahead.  Unfortunately, the reporting of prices has created confusion, some numbers showing inflation slowing while headlines say the opposite.  (more…)

Has Iran’s inflation peaked?

Posted in Macroeconomy, Poverty, Sanctions by Djavad on November 28, 2018

Last June, I wrote on this blog about the return of inflation in Iran, when inflation had jumped from an annual rate of 18 percent in April 2018 to 34 percent in May.  In more recent months, inflation has been running at an annual rate of 78 percent per month, twice the rate in May.  But, for the past two months, October and November, the monthly rate has declined.  Is this a sign that the current phase of high inflation, which started with the collapse of the rial, is about to end?   Containing inflation is critical if Iran is to convince its citizens that economic stability is returning and that the news of hyperinflation and economic collapse are exaggerated. (more…)

The cost of sanctions for Iran’s economy

Posted in General, Macroeconomy, Sanctions by Djavad on July 23, 2018

There is no easy way to determine the impact of international sanctions on Iran’s economy, but looking at the growth rate of the GDP after 2011, when international sanctions tightened, is a good place to start.  The question has become more than an historical curiosity since Trump decided to pull the US out of the Iran nuclear deal and reimposed sanctions.   (more…)

The return of inflation

Posted in General, Inflation, Macroeconomy, Sanctions by Djavad on July 1, 2018

According to the Central Bank of Iran, last month (Iranian month of Khordad, which ended on June 20, 2018), consumer prices increased by 4.3 percent.  This translates into a whopping annual inflation rate of 67 percent.  The government announcement was much less alarming, using the so-called point-to-point inflation rate (Khordad 2018 over the same month 2017) of 9.4 percent.  As I explained in a recent interview in Tejarat Farda (in Persian), the point-to-point reporting is very misleading when inflation is accelerating, and does not fool anyone (any more than I could fool a police officer whose radar registered my speed at 80 miles per hour by claiming that my average speed since leaving home has been below the speed limit). (more…)

How large is capital flight from Iran?

Posted in General, Macroeconomy by Djavad on April 19, 2018

On April 10, Iran instituted new foreign exchange regulations involving three changes: devaluation of the official rate by about 15 percent, restricting movement of capital out of Iran, and making the possession of foreign currency in excess of 10,000 euros ($12,500) illegal.  This policy was largely to stop the run on the rial, but rumors of capital flight may have also played a role. In particular, a claim by a prominent member of the parliament that, as reported in Al Monitor, “$30 billion of capital had fled Iran in the final months of the last Iranian year.” (more…)