Analysis of Inflation Rate Changes in June; A Little Cloudy Ahead

The Central Bank and the Statistical Center of Iran released two reports in quick succession announcing the inflation rate for June 2015. A notable point in both reports is the emergence of concerning signs regarding the trend of this index in the last month of the spring season this year. According to the Central Bank's report on the results of the consumer goods and services price index in urban areas of Iran during June this year, the average inflation rate reached 15.6 percent in this month, which is a 0.1 percent increase compared to the inflation rate for the 12 months ending in May this year. The point-to-point inflation rate for June, which compares the inflation rate in the reported month to the same month last year, remained at 16.2 percent. The point-to-point inflation rate in May was also at this figure. However, a significant point in the Central Bank's report on inflation changes in June is the monthly inflation rate, which depicts the growth of this index over the one-month period from May to June. According to the Central Bank's report, this index was 1.7 percent in the reported month, which is considered relatively high, and if this trend continues in the coming months, the government will not be able to achieve its goal of a single-digit inflation rate by the end of this year. According to the Statistical Center of Iran's report on urban inflation in June this year, the same concerning signs regarding the future changes in the inflation index can be traced. The average urban inflation rate for the 12 months ending in June this year reached 14.2 percent, indicating a trend of decreasing acceleration in the average inflation rate, although this decrease is not significant. The 12-month inflation rate ending in May this year was 14.3 percent. The average rural inflation rate for the 12 months ending in June 2015 remained at 13.2 percent, which is about one percentage point lower than the urban inflation rate in the same month. Despite the very slight decrease, the average urban inflation rate, the point-to-point inflation rate in urban areas of Iran in June 2015 compared to June last year, increased to 14.2 percent. This index had a growth of 13.7 percent in May this year, which increased in June. However, rural households in June this year experienced a point-to-point inflation rate of 13.7 percent, which shows an increase of 0.4 percent compared to the point-to-point inflation rate in May this year. According to the Statistical Center of Iran, the monthly inflation rate during June this year was 1.2 percent, and if this monthly inflation rate continues until the end of the year, an annual inflation rate higher than 12 percent will befall the Iranian economy. In the report from the Statistical Center of Iran on changes in urban inflation rates in June 2015, the point-to-point inflation rate for the main food and beverage group, with a weight of 25.1 percent, was about 16 percent (15.9 percent), and the average 12-month inflation rate for this group in June reached 10.5 percent. According to the Central Bank's report, the index for the food and beverage group in June 2015 experienced a point-to-point inflation rate of nearly 21 percent (20.8 percent), which is considered high given the weight of this group's price index. The monthly inflation rate for this group of goods was also recorded at 1.6 percent in the Central Bank's report. According to the Statistical Center of Iran, the point-to-point inflation rate for the food and beverage price index in June this year for urban households was about 16 percent (15.9 percent). The weight of this group's price index in calculating the inflation rate is over 25 percent. The 12-month inflation rate ending in June for the food and beverage group price index for urban households in Iran reached 10.5 percent. A noteworthy point in this context is the changes in the food and beverage price index for rural households in Iran in June this year. The weight of the food and beverage price index in calculating the inflation rate for rural households in Iran alone has an importance of about 40 percent, indicating that changes in this group's price index can significantly impact the average inflation rate. The point-to-point inflation rate for the food and beverage price index for rural households in June this year was 15.7 percent. The convergence of the point-to-point inflation rate for the food and beverage price index for urban and rural households indicates that rural households, which previously produced their own food, have become consumers of it, or that the advantage of home production or food self-sufficiency in Iranian villages has faced challenges. An examination of the changes in the selected goods basket by Radio Farda in June this year also shows that the average price of these 10 items in June this year decreased by less than 3 percent (2.6 percent) compared to June last year. Potatoes recorded the largest price drop during this period, while eggs experienced the highest price increase from June last year to June this year. Details of the price changes of the selected goods in Radio Farda's basket can be seen in Table 1. The average price of these goods in June this year did not change much compared to the previous month, with changes of less than one percent (0.12 percent) indicating relative stability. Each tray of 30 eggs experienced the highest price increase among the items in Radio Farda's selected basket, with its price increasing by more than 24 percent during this period. The largest price decrease during this time was attributed to tomatoes, with the price of each kilogram of tomatoes decreasing by an average of more than 22 percent from May to June this year. Details of the price changes of these items during the period from May to June 2015 can be followed in Table 2. However, comparing the price change trends of these items over the two-year period from June 2013 to June 2015 is also worthwhile. During this two-year period, the average price changes of the items in this basket decreased by less than one percent (0.75 percent). The largest price decrease was recorded by potatoes, which faced a price drop of over 28 percent from June 2013 to June this year. During this time, among the 10 selected food items by Radio Farda, the highest price increase was recorded for each tray of 30 eggs, which saw an increase of about 20 percent (19.28 percent). Details of the price changes of these items from June 2013 to June 2015 can be seen in Table 3. Finally, in Table 4, seasonal price changes of the items in Radio Farda's selected goods basket can be examined. The average price of this goods basket in the spring of this year decreased by more than 3 percent (3.35 percent) compared to the spring of 2014. The price of tomatoes decreased by more than 35 percent, while the price of each tray of eggs increased by about 20 percent, marking the highest decrease and increase in price from last spring to this spring. Previously, several economic experts had warned government officials that maintaining a decreasing inflation trend and bringing the rate below 10 percent would be a difficult task for the government. According to these experts, the government has now reached the core of inflation, and the relative financial discipline of the government, along with optimism regarding future economic developments in Iran after a possible agreement on the nuclear issue and other factors influencing the reduction of inflation so far, will not have a significant impact moving forward. Further reduction in the inflation rate will require more effective policymaking, which can control the liquidity growth while also providing the financial resources needed by producers.