August 15, 2022 | Policy Brief

Despite Growth, Inflation Surges in Iran Under Raisi

August 15, 2022 | Policy Brief

Despite Growth, Inflation Surges in Iran Under Raisi

This month marks the first anniversary of Iranian President Ebrahim Raisi’s assumption of power, but he has failed to fulfill one of his key campaign pledges: to relieve Iran’s economic plight. Over the past year, Iran’s economy did grow faster and increase export revenue, yet this has primarily benefited the regime, failing to generate jobs, lower inflation, or raise the quality of life for ordinary Iranians.

In the Persian calendar year 1400 (March 2021 to March 2022), Iran’s economy grew by 4.3 percent, much higher than the previous year’s 1 percent growth. The latest data from the Central Bank of Iran show the bank’s net foreign assets in July were $130 billion, $16 billion more than a year earlier.

Tehran’s minister of petroleum, Javad Owji, said in late July that Iran has produced 27 percent more oil over the past year — up from 3 million barrels per day to 3.8 million — than it did when the Rouhani administration left office in August 2021. Iran, he added, now exports 40 percent more oil and 25 percent more gas. The change is mainly driven by higher prices and the Biden administration’s lax enforcement of sanctions during nuclear negotiations.

The modest expansion of the services sector — Iran’s largest — constituted another key engine behind the Islamic Republic’s economic growth. The sector grew by 4.5 percent in the Persian calendar year 1400, after shrinking by 1.3 percent the previous year. This growth largely resulted from the waning of the COVID-19 pandemic.

In fact, quarterly data from Iran’s Statistics Center show that the country’s economic growth as a whole is now decelerating. The Raisi administration has put a cap on Iran’s economic development by refusing the Biden administration’s offer of extensive sanctions relief in exchange for the temporary limits on Tehran’s nuclear program prescribed by the 2015 nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA). Washington’s offer would deliver a $275 billion benefits package in its first year and allow Iran to generate more than $1 trillion in trade revenue by 2030.

While growth is up, Tehran’s economic policies have not improved the lives of most Iranians. Rather, the regime has presided over a dramatic rise in inflation. The average 12-month inflation rate over the past year was 40.5 percent. According to the Statistics Center, the 12-month point-to-point inflation rate was 54 percent in July; it was even higher for food and beverages, at 87 percent.

The massive inflation in the food and beverage industry is partly the result of Raisi’s decision earlier this year to cut subsidies for flour. The regime had previously subsidized flour imports by allowing them to be conducted using the central bank’s low exchange rate, which is one-seventh of the price that importers of other goods pay in Iran’s NIMA market, a currency exchange market for importers and exporters. The subsidy cuts caused protests across the country, but the regime suppressed them with force.

A year into Raisi’s presidency, the labor-force participation rate is lower, and the unemployment rate is higher. Fewer people are actively seeking a job, and a higher number of those who seek employment cannot find it. According to the Statistics Center, the labor-force participation and unemployment rates were 40.9 percent and 9.2 percent, respectively, in spring 2022. A year earlier, in spring 2021, they were 41.4 and 8.8 percent. In other words, the Raisi administration has lost almost 100,000 jobs to date.

A year after Raisi entered the presidential palace, Tehran is selling more oil and has more money. Iranians, however, have found fewer jobs, while prices are skyrocketing. Regardless of Raisi’s economic policy, Tehran’s decision on whether to revive the JCPOA will likely determine the path of Iran’s economy in the near future. If the Biden administration revives its predecessor’s maximum pressure campaign, the Iranian economy will return to stagflation.

Saeed Ghasseminejad is a senior advisor on Iran and financial economics at the Foundation for Defense of Democracies (FDD), where he contributes to FDD’s Iran Program and Center on Economic and Financial Power (CEFP). For more analysis from Saeed, the Iran Program, and CEFP, please subscribe HERE. Follow Saeed on Twitter @SGhasseminejad. Follow FDD on Twitter @FDD and @FDD_Iran and @FDD_CEFP. FDD is a Washington, DC-based, non-partisan research institute focusing on national security and foreign policy.


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