Sanctions Drive Up Cost of Living in Iran

US and EU sanctions are having a sharp impact on Iran’s economy, writes Mohamed Sedkian. In Tehran, rent prices and basic goods like brad and milk have increased up to 30% recently. Nevertheless, Iranian officials claim that the effects of the sanctions are overblown, and part of a US and EU psychological war.

al-monitor U.S. and European economic sanctions are taking its toll on prices in Iran.  Photo by REUTERS/Morteza Nikoubazl.

Topics covered

inflation, us, sanctions, oil and gas, oil, iran, europe, ahmadinejad

Jul 1, 2012

Soaring prices in Iranian markets have set off a wave of criticism against the government by politicians and religious figures. Iranian officials have failed to contain the upward trend in basic commodity prices, which has affected goods such as milk, bread and meat, in addition to rent and mortgages.

Commodity prices witnessed a sharp increase after the EU oil embargo on Iran came into effect. US sanctions threatening any financial institutions doing business with Iran's central bank have also had an impact.

Since last month, Iranian markets have witnessed an increase in milk and bread prices, by 30% and 25% respectively. Consequently, the government was forced to increase the monthly subsidy for citizens to 3,000 Toman ($3.60). Rent prices in Tehran also rose by 30%. However, Iranian authorities assured citizens that the government would offer them support for obtaining goods, especially during Ramadan. Iran’s currency also plummeted to as low as 2,000 Toman per dollar.

Prior to the parliamentary session, Chairman of the Shura Council Ali Larijani made a statement on Wednesday calling on [President Mahmoud] Ahmadinejad’s government to rein in the sharp rise in prices. Larijani stressed that tackling inflation was now a priority for parliament, noting that “the soaring prices of essential commodities, such as bread, milk and rent require good management and thorough planning. This is despite all of the damages that our enemies abroad may cause.”

Larijani supported parliament’s request for 30% of the public budget to be appropriated toward encouraging production, and that governmental subsidies be lifted gradually on essential goods and services, “so that producers and farmers won’t have to endure the current situation.”

Larijani accused “tyrannical countries of trying to drive Iranians to despair and take advantage of the high cost of living to exert control over Iran’s government in an attempt to achieve their goals.” He also called upon the government to deal effectively and earnestly with this issue. 

However, Sources close to Ahmadinejad’s government underplayed the effects of the US sanctions on Iran’s Central Bank and oil. They described such measures “as sheer publicity amid a complicated psychological war. They are aimed at influencing the local public opinion and incur Iranians’ displeasure with the current economic situation.” The same sources added, “These sanctions aim to cause a rift between the citizens and the government.”  However, the sources also believed that such attempt will ultimately fail.

In the last few days, Iran’s stock market witnessed a 200 point decrease in the stock indexes. Stock traders estimate a further fall in stock prices, leading stakeholders in the market to hold a meeting with investors to curb stock devaluation.

Financial experts ascribed stock price deterioration to several reasons, mainly the worsening inflation rate in the country (which exceeds 20%), the devaluation of the Iranian Rial against the dollar and the soaring price of gold in local markets compared to the international downward trend.

Experts also relate the country’s economic deterioration to the absence of scientific approaches that better help to implement the Iranian targeted subsidy plan. This negligence negatively affected the financial performance of the banking sector, including both public and private companies.

The Iranian news agency, which has close ties with Mohseen Rezaee, secretary of the Expediency Discernment Council, criticized Iran’s state-run media for focusing on international economic issues rather than Iran’s domestic ordeals. According to Baztab, the policies of Iran’s Central Bank regarding loans, investments and interest rates have discouraged foreign investments in local production markets.

The online news agency also blamed the government for failing to find solutions to problems in security and investment markets. The agency also urged the government to overcome the faltering stock market situation, in order to sustain Iranian capital and avoid further losses.

Traders in Iran’s stock markets noted that local markets were directly affected by the news of the economic sanctions, especially the EU oil embargo on Iran.


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