Inflation in Iran: A 180,000 Percent Rate post-Revolution Iran’s soaring inflation rates

According to official Iranian government data, from the 1979 revolution to the end of 2019, the cumulative rate of inflation in the country reached 189,000 percent. The Iranian Central Bank has not yet released the inflation rate for the year 2020, but if we rely on the rate released by the  Statistical Center of Iran, which has calculated it at a rate of 36.4 percent, the cumulative rate of inflation for the past four decades after the revolution will be 179,583 percent. 

According to the Central Bank's historical data, the highest inflation rate was in 1943 with the annual rate of 110.5 percent. The lowest annual inflation rate was in 1950, when the Central Bank reported an inflation rate of negative 17.2 percent.

The Central Bank's research and analysis of the inflation data show that since they first began tracking inflation data in the 1940s, the 1990s had the highest cumulative inflation of 613 percent.

The 1990s are closely followed by the period from 2011 to 2020. Even though the official rate has yet to be announced for 2020, it is safe to assume that the inflation rate of the last decade will be a close second to the 1990s.

Comparing each of the considered decades, the 1960s has recorded the lowest rate of inflation growth of only 15.8 percent. 

The “Economic Adjustments” plan, which was implemented in the 1990s, after the end of the eight-year Iran-Iraq war, is the primary reason for the rapid inflation rate increase and its consequent price increases. Shock in the currency market and its impact on other markets and prices is considered the biggest cause of the high inflation rate in the decade. 

High liquidity and monetary base is the primary reason for the high rate of inflation in the 2010s. The government’s approach to securing local currency resources was the main cause of this high liquidity while the significant monetary restrictions imposed by oil and banking sanctions exacerbated the situation.

1960s: The Exception in the History of Iran's Economy

The 1960s can undoubtedly be considered a historical exception in the Iranian economy. That decade saw each year pass with an annual inflation rate of less than five percent. This feat has not been repeated at any other time in the subsequent six decades.

The 1960s was a unique decade when considering other macroeconomic indicators as well, so much so that it was dubbed the "Golden Decade'' of Iran. Political stability, theoretical homogeneity, and uniform action among senior economic administrators were among the main reasons for the remarkable performance of Iran's economy in the 1960s. Meanwhile, the competition between the two world superpowers — Washington and Moscow — enabled Iran's modernization and industrialization plan, which was formulated in the Third and Fourth Development Plans, to use the capacities on both sides of this competition. Financial discipline and stability of oil revenues, in this period, provided the necessary resources to advance the economical ideas for the administrators such as Alinaghi Alikhani, Mehdi Samiei, Mohammad Ali Safi-Asfia and Reza Niazmand.

However, with the sudden increase in oil revenues, the commitment to planning and financial discipline was weakened. With the dismissal of the government's homogeneous economic team of the 1960s, the successful economic trend of those years was not repeated in the 1970s. The decade’s accomplishments were quickly lost.

Inflation before the Revolution

It is not without merit to study the changes in inflation rates in governments before the revolution of 1979. With the exception of Amir Abbas Hoveyda’s government, which lasted for nearly 13 years, the other prime ministers did not have long tenures.

Between 1936 and 1979, only five Prime Ministers had tenures longer than two years. During Amir Abbas Hoveyda’s 13-year administration from 1965 to 1976, the annual inflation rate was 6.1 percent.

During Manouchehr Eghbal’s administration, between 1957 and 1960, the inflation rate was 6.6 percent. Eghbal came to power in March of 1957 and remained Prime Minister until August of 1960.

During Mohammad Mossadegh’s administration, (April 1951 - August 1953) the inflation rate, according to the statistical data, went from 8.3 percent to 7.2 percent.

From January 1945 to November 1947, Ahmad Ghavam served as Prime Minister. If we assume that he was responsible for the inflation rate during his tenure, the average rate at his time was negative 4 percent.

We only have the statistical data of the three-year administration of Mahmud Jam, in Reza Shah’s time. According to the Central Bank, the average rate of inflation between 1937 and 1939 is 12.7 percent.

The following two diagrams show the inflation record before and after the revolution. In the second diagram, the average inflation rate is calculated only for administrations that lasted more than two years.

Economic Inflation Performance of the Islamic Republic

After the 1979 revolution, inflation fluctuated at vastly different levels during the various administrations.

The lowest average annual inflation rate recorded during president Mohammad Khatami’s second term, which was slightly less than 22 percent. The cumulative inflation rate during his eight-year presidency was 174.4 percent.

Relative stability in government policies, adapting a de-escalating strategy in foreign policy, and economic reforms are among the factors leading to such a relatively low inflation rate at the time.

Under president Mahmoud Ahmadinejad, inflation was on a continual increase due to an absence of government budgetary discipline and the rise of government spending from rising oil prices pushed the inflation rates higher and higher each year.

During president Hashemi Rafsanjani's two terms in office the average annual inflation rate was 50 percent - an unprecedented feat that has yet to be repeated.

The chart below shows the eight-year cumulative inflation rates during different administrations in the Islamic Republic of Iran.

Examination of the changes in the rate of inflation over the last four decades shows that those rates have been in a single digit range for only four years, though three of those four years the rate lingered around 9 percent. For the remaining years following the 1979 Revolution, this index has been in double digits. The problem of high inflation is chronic, constant, and unresolved. It remains one of the fundamental economic challenges facing Tehran.

This article was originally published in Persian (available here).