Iran’s official inflation rate has almost doubled over the past year as prices are driven up by budget reforms, a weak currency and international sanctions, according to new data which could add to criticism of President Mahmoud Ahmadinejad.
Inflation in urban areas was 21.5 percent for the last Iranian year which ended on March 19, the central bank said in a statement on Sunday. Prices of goods and services rose 12.4 percent during the preceding year, according to figures previously released by the bank.
During the final month of last year, when consumer demand related to year-end celebrations added to upward pressure on inflation, prices jumped 3.4 percent from the previous month.
Ahmadinejad’s economic management is being attacked by some lawmakers and last month he was summoned to parliament for an unprecedented interrogation on his policies.
Many Iranians believe real inflation is much higher than the official rate, and some clerics and lawmakers have accused the government of providing incorrect figures.
Inflation has been rising relentlessly from a low of 8.8 percent in August 2010. The main cause has been the government’s decision to begin phasing out subsidies on food and fuel in December 2010, in order to reduce wasteful consumption and cut state spending.
But prices have also been hit, indirectly, by a tightening of international sanctions over Iran’s disputed nuclear program.
Import costs soar
The sanctions, led by Washington and Europe, have frozen Iran out of much of the global trading system in the last several months, forcing importers to use more expensive channels to obtain food and intermediate and consumer goods.
The sanctions have also pushed down Iran's currency which has in turn added to inflationary pressure by making imports more expensive.
In mid-March the government said it would let the rial trade freely among currency dealers, reversing a policy introduced just seven weeks early of requiring all rial trades to be done at an official rate of 12,260 against the U.S. dollar.
Many businessmen think the central bank will prevent any further free-fall of the rate; the rial was quoted at 19,050 to the dollar by the Association for Exchanges of Iran on Sunday, barely changed from 18,890 just after the policy shift. Nevertheless, the rial’s free-market rate has roughly halved against the dollar over the past year, adding to import costs.
Despite the misery caused by surging prices among ordinary Iranians, the economy is self-reliant compared to many other oil exporters in the Gulf, and has demonstrated it can operate in a high-inflation environment. Inflation hit levels of around 30 percent in 2008.
Late last month, the Iranian Labor News Agency reported the government was boosting the monthly cash payments it gives to citizens by over 50 percent to help them cope with inflation.
Some Western diplomats have expressed hope that economic pressure from sanctions might force Iran’s leaders to make concessions over its nuclear program but there is no indication so far that that has happened.