Tyranny of numbers

Inflation and money supply in Iran: a closer look

Posted in General, Macroeconomy, Sanctions, Subsidy reform by Djavad on February 11, 2013

Last week, in a post on the Lobelog.com I noted further signs of moderating inflation.  Prices in the Iranian month of Dey (ending 20 January 2013) rose by 1.7%, compared to 2.5% the month before and 4.5% per month in the previous two months after devaluation.  These are high rates of inflation on an annual basis (see chart below), but a sign that the Central Bank may have found a way to keep the growth of money supply below the rate of inflation.  I was curious enough if this were the case to look up money supply data published by the Central Bank and here is what I found.  For the quarter that ended on December 20, 2012, which covers the three month period after devaluation, the rate of growth of money supply was 20 percentage points below the rate of inflation. (more…)

Iran’s Inflation showing signs of moderating

Posted in Inequality, Macroeconomy, Poverty, Sanctions, Subsidy reform by Djavad on January 10, 2013

The Central Bank of Iran has just released the Consumer Price Index for the month of Azar (ending on November 20, 2012), and it shows a much smaller increase in prices than the previous two months.  The index rose by about 4.5% per month during the last two months (equal to 70% annually), but its pace moderated in Azar, rising by 2.5%.  This is still a sizable increase (about 35% annually), but it may be a sign that the large devaluation of the rial during the last week of September has run its course and consumers maybe back in the territory that, unfortunately, they have come to regard as normal: prices rising by about 20% per year.  This is, of course, conditional on no new shocks happening to the exchange rate or the money supply in the near future. (more…)

Prices in Iran and what they mean for the PPP exchange rate

Posted in General, Macroeconomy, Sanctions by Djavad on November 4, 2012

As I have argued in this blog and elsewhere, there is not a single equilibrium exchange rate for the rial. If you believed my rough calculations in my previous post, and if you needed to report only one number, the exchange rate would be something around 20,000 rials per dollar (about 96.5% increase over the old exchange rate of a little over 10,000). The next best thing after an equilibrium exchange rate (ER), one that is actually more useful for welfare comparisons, is the Purchasing Power Parity ER. Here are my back-of-the-envelop calculations of the PPP rate for Iran in 2012.

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Rial devaluation and inflation — without the hype

Posted in General, Macroeconomy, Sanctions by Djavad on October 29, 2012

For the past several weeks, the rapid fall of the rial has been linked to hyperinflation and a possible quick end to the impasse in nuclear negotiations with Iran. Inflation estimates of 196% per year in NYT, 70% per month in Boston Globe, and similar reports in Washington Post and Bloomberg, were all traceable to an article in the Cato website that had prematurely added Iran as the 48th worst case of hyperinflation in the world. Some commentators could hardly hide their joy in the prospect that sanctions were finally, and mercifully, about to spare the Middle East yet another war and the Iranian people years of suffering under sanctions. But these predictions have failed to materialize, and the media interest in the issue has waned. We are slowly hearing the other story of the rial devaluation, its positive effect on local production (see, for example, Jason Rezaian’s informative report in Saturday’s Washington Post).

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More on the falling rial

Posted in General, Macroeconomy, Sanctions by Djavad on October 5, 2012

I have not been able to write much on this blog because I have been trying to catch up on my research.  But the rial troubles in the last two weeks have been impossible to ignore.  I am not a macro economist, but some of what the media was reporting about the freefall of the rial even I knew was over-sensationalized — hyperinflation, economic collapse… and one Iranian BBC reporter said he had run out of words to describe it!  Yesterday I tried to explain on the lobelog three things. (more…)