Decrease in Inflation Rate with a 'Bitter Taste'

Radio Farda - According to the Statistical Center of Iran, the country's inflation rate decreased to 14.5 percent in the first month of the current year. Reza Valizadeh asks Fereydoun Khavand, an economist residing in Paris, whether the promise of President Hassan Rouhani's government to reduce the inflation rate has been fulfilled. Fereydoun Khavand states in an interview with Reza Valizadeh that the promise of the eleventh government regarding the reduction of inflation can be considered achieved up to this point. Based on the calculations of the Statistical Center, the inflation rate has dropped from over 30 percent in the first month of last year to 14.5 percent in the first month of the current year, which is a significant decrease. However, a decrease in the inflation rate does not mean a decrease in prices. It means that the annual growth rate of prices was over 30 percent last year, and today it is 14.5 percent, which is still one of the highest inflation rates in the world; but compared to the situation that existed during the previous government, it is an achievement. However, this achievement has a bitter taste because it is accompanied by ongoing recession. It is true that the country's economy has overcome negative growth, but the announced growth rates of around two to three percent are very low for a developing economy. We see that the driving forces of the country's economy, including production and consumption, have not yet started working, and the specter of unemployment weighs heavily on the country. In this situation, the impact of the decrease in the inflation rate is not significantly felt in the lives of a large part of the Iranian people. Can we hope that with the continuation of the current trend, Iran's inflation rate will become single-digit in the near future? The success of the eleventh government in reducing the inflation rate left over from Mahmoud Ahmadinejad's era has been achieved due to better financial discipline and the central bank's policy in managing the currency market. It should also be noted that the progress made in nuclear negotiations and especially the temporary agreement in Geneva in November 2013 played an important role in stabilizing the exchange rate and consequently controlling inflation. On the other hand, the fundamental and root causes that are the main source of inflation in the country remain untouched. One of these factors is the bloated and exhausted government that consumes a large part of the country's resources, creates a budget deficit, and is inherently inflationary. Rouhani's government has not yet taken any decisive steps towards reforming the country's economic structures. How do international organizations view the future of inflation in Iran? Iran still holds a very unfavorable position in international inflation statistics. The International Monetary Fund in its April report predicts Iran's inflation rate to be 16.5 percent in 2015 and 16 percent in 2016. Even in 2020, according to this organization’s forecast, Iran's inflation rate will remain at 17 percent. However, for a country like Iran, with so many question marks, predictions for five years ahead should not be taken too seriously.