Tyranny of numbers

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.

There is no shortage of grievances in Iran, so explaining the recent protests that have engulfed the country is not hard. The economy has stagnated for over a decade and inflation has been very high. But the timing of the protests suggests a connection between the protests and President Ebrahim Raisi’s decision to cut food subsidies. Some media reports speak of “bread protests”, but the price of the staple bread has not changed.

In an IIEA panel held (virtually) on March 9, 2022, Nadereh Chamlou asked how sanctions have impacted women’s employment (about min 1:22 in the video). My answer was that identifying the impact of sanctions on women’s employment is difficult but that I thought that Covid hit women harder than sanctions. The loss of female employment has been observed around the world, where women had to quit their jobs to care for their children whose schools were closed, or had other Covid-related extra household work. Later on, Hashem Pesaran questioned my conjecture on the importance of Covid for women’s employment, which is why after the panel I looked more carefully at the labor force survey data, which confirm my statement.

The data from LFS for the past ten years show that the number of women employed reached its maximum during 2018-2019 at 4.3 million, when sanctions were toughest. This number fell to 3.7 million in 2020, most likely because of Covid since sanctions did not intensify in 2020. Furthermore, this decline was not matched by decline in men’s employment as the ratio of female to male employment also fell in 2020 for all age groups (see Table below). For prime age workers (25-54 years old), this ratio fell from 24.4% in 2019 to 21.3% in 2020. Roughly twice as many women lost their jobs in 2020 compared to men (665,000 vs. 357,000).

The latest data from the Statistical Center of Iran (SCI) for inflation show that prices rose faster last month (the Iranian month of Dey ending on January 20) compared to the month before. At that time, inflation was on its way down from its peak of 59% annual rate in September to 22% in November. Last month it was back up to 32% last month. This is potentially bad news for the Raisi government, which is keen to show that his government can control inflation and dispel endless rumors that Iran’s economy is on the brink.

Last month, the consumer price index (CPI) rose at annual rate of 9.4%, down from 37.4% the months before and far lower than its peak increase of 85% last October. By itself, this is no indication that inflation is slowing. Based on past experience, inflation is likely to go back up, but it may well be a sign that inflation is on its way down, the same way it happened after the previous two bouts of high inflation in the past decade. Inflation is the most important grievance of Iranian voters as they go to the polls this week, so it is worth taking the monthly drop seriously.