Inflationary pressures forecast to remain high in Iran

Finance Materials 3 August 2022 21:15
Baku, Azerbaijan Trend News Agency
Inflationary pressures forecast to remain high in Iran

Inflationary pressures are forecast to remain high in Iran, at over 35 percent per year in 2022– 2024, as fiscal and exchange rate pressures persist, Trend reports citing World Bank’s country report.

Inflationary pressures are reinforced by the recent global surge in inflation and higher commodity prices. Sustained levels of high inflation will continue to put pressure on the livelihood of poor and vulnerable households, which have already been severely hit by the pandemic crisis and a lack of job opportunities.

The recent surge in global food and energy prices will raise the import bill and the implicit subsidy of energy and food products. Given the wide range of subsidies and administered prices in Iran, higher global food and energy prices will increase the cost of maintaining these subsidies. Gradual domestic price adjustments in line with higher global prices would help reduce the fiscal burden of higher import prices on government finances.

The effect of these price increases on lower-income households can be mitigated by well-targeted transfers using existing means testing tools and resources including the national welfare database.

However, considering the recent years of high inflation and continued real income losses, any successful reform needs to be comprehensive, gradual, and complemented by a transparent public communication strategy.

The government can also enhance the targeting and effective coverage of social safety nets to protect the most vulnerable throughout the price adjustment process.