The gold standard for measuring change in household welfare in Iran
The anniversary of the Islamic Revolution 40 years ago this month coincided with the deepest economic crisis Iran has experienced since the war with Iraq in the 1980s. As with top Trump administration officials, who wished the crisis on ordinary Iranians in the hope of enlisting their help in regime change, excitement among the Iranian opposition abroad is palpable. The occasion has also stimulated discussion of success and failure of the revolution concerning a wide range of issues and metrics. Much of the discussion involved comparison of living standards in Iran between now and in the 1970s (read my own comparison in Project Syndicate here.)
As before-after comparisons go, how much gold you can buy now and then offers a more edifying standard than the price of cucumbers, but it is more misleading. Prices of assets are notoriously volatile and therefore should not be used for real income comparisons. You can find several Iranian sites like this one (link in Persian) with such comparisons, but I will discuss the most visible one, the news analyses of the BBC Persian service. BBC Persian offers many informative programs and generally upholds the high standards of its parent news service, BBC World News. But in this particular case it has erred badly. A report which aired a couple weeks ago asked how much gold a teacher could buy now and in 1974. This year is perhaps not the best choice for a before-after comparison as Iran is in the middle of an economic shock engineered by the US and not the result of the normal operations of the Iranian economy (which is quite poor on its own). Nor is 1974 good as a start year because Iran received nearly four times as much oil revenues per person — a gift from the rest of the world –in 1975 as it does now. Taking 1972 and 2017 would have offered a more informative comparison, but this is a secondary point.
Rouhani’s new budget cuts back on expenditures, big time
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?
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?
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…)
Food consumption of the poor in Iran
It is now clear that the purpose of US sanctions against Iran is to make its people miserable enough so they pressure their government to agree to US demands. One obvious response to this strategy is for the Iranian government to shift resources to groups most likely to feel and transmit these pressures. If the government has a such a plan, who to protect and how, it seems lost in the chaos of the exchange rate market and reshuffling of government ministers. Perhaps the past can be a guide: how did Iran manage the last phase of sanctions, when, in July 2011, President Obama ratcheted them up.
The cost of sanctions for Iran’s economy
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
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?
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…)
Was the Living Standard of Iranians Higher Before the Revolution?
It is not surprising to hear Iranians say that life was better before the revolution. Depending on their social class, they could be thinking of a variety of metrics, social and economic. But to hear economists speak about how life for the average Iranian was better before the revolution is surprising, at least to those with access to data.
Two and a half years ago, I addressed this subject in this blog, refuting a claim made by an Iranian economist that in 2013 Iran’s GDP per capita was 42% below its 1976 level. Then a week ago, Masoud Nili, the top economic advisor to President Rouhani, made a similar observation, this time with much wider publicity, saying, according to press reports, that, “income per capita now is 70 percent of its value in 1976.” So, it’s time to repeat the argument of why this comparison is wrong.
Does economic growth in Iran increase income inequality?
Inclusive growth is what international organizations recommend these days, and it hard to argue otherwise. Economic growth is better when rich and poor equally benefit. Better still, is pro-poor growth, the type that lifts poor people’s incomes more than the rest. The recent unrest in Iranian cities makes this question timely: was Iran’s recent economic growth following the implementation of the nuclear deal unequal, inclusive, or pro-poor? Clearly, low-income youth who staged the protests believe that growth has not been inclusive. Can data verify their sentiments? It turns out they do. More specifically, the economic growth of 2016, which is the main fruit of Rouhani’s international and domestic policies, does not seem to have reached all social classes equally. (more…)
Tyranny of numbers 
1 comment