The story of Iran’s hyperinflation was not a hoax, but instead reflected a deep misunderstanding of Iran’s economic situation. Sensational stories of economic collapse in Iran appeared in the blogosphere and in the mainstream press — and they simply were not true. Since accurately understanding the impact of sanctions is critical for setting US policy, what lessons can we learn from this episode?
In late September 2012, Iran’s currency took a dive, falling by about 50% in two weeks. This was seen as a definitive sign that sanctions against Iran were bearing fruit, that Iran’s economy was on the verge of collapse and that the West would face a humbled Iranian leadership in the nuclear standoff. The key to the story was a prediction published on the website of the conservative Cato Institute that the devaluation would cause prices in Iran to rise by 70% per month, doubling every 38 days, which is hyperinflation.
