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Inflation likely to rise in Rouhani’s second term

Despite its drastic cut in inflation to single digits for the first time in years, reports predict that Iran will see a return to its usual high inflation rates.
Iranian president Hassan Rouhani arrives for a news conference in Tehran, Iran, May 22, 2017. TIMA via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. FOR EDITORIAL USE ONLY. - RTX371X2

In terms of economic management, containing inflation has been one of the most significant achievements of Iranian President Hassan Rouhani’s first term in office. The Rouhani administration managed to reduce inflation from close to 40% in mid-2013 to 7.2% in the Iranian year ending on March 20, 2017. As a result, Iranian politicians have been promising a single-digit inflation rate over the next few years that would help stabilize the country’s economy.

However, the first quarterly report on inflation has raised eyebrows. According to the latest report of the Central Bank of Iran (CBI), inflation in the 12-month period ending June 21 was 10.2%, and inflation in the last month was 0.3%. Neither of these figures are alarming — indeed, the Majles Research Center (MRC) had predicted that inflation in the current Iranian year would reach 10.9%. However, the question is whether a sustained single-digit inflation rate is realistic in the Iranian economy. Iran has experienced such low inflation only twice (including last year) since the end of the Iran-Iraq War in 1988 and the country has lived with inflation above 10% for most of the past three decades. This article will look at the determinants that will influence inflation in the Iranian economy and how they will interact in the next few years under Rouhani’s new government.

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