Inflation; Returning to the Confidence Zone

Following the release of reports regarding the inflation rate for August of this year, one of the concerns among observers was the disruption of the uniform trend in the changes of inflation rates. In the reports from the Central Bank and the Statistical Center of Iran regarding the price index developments in August 2016, the point-to-point inflation rate faced an upward movement, halting the months-long downward trend of the point-to-point inflation rate in line with the average inflation rate. On the other hand, the monthly inflation rate was recorded at 1.1% in the Central Bank report and reached 1.4% in the report from the Statistical Center of Iran. The fluctuation of the monthly inflation rate above one percent and the disruption of the downward trend of the point-to-point inflation rate in August signaled alarm bells for experts regarding the potential increase in the average inflation rate in the coming months. However, the publication of reports from these two centers regarding the changes in the price index of goods and services at the end of September slightly improved previous pessimistic assessments. According to the Central Bank, the average inflation rate in September reached 8.8%, which, although 0.1 percentage points lower than the previous announcement by the Central Bank, indicates the maintenance of the downward trend in the average inflation rate. The average inflation rate reported by the Statistical Center of Iran for September was 8.3%, which was 0.4 percentage points lower than the rate in August. However, the point-to-point inflation rate, which had an upward trend in the reports of these two centers for August, at least in the report from the Statistical Center of Iran, returned to a downward trajectory, with the point-to-point inflation rate for September reported at 6.7%, which is 0.7 percentage points lower than the point-to-point inflation rate in August. Conversely, the point-to-point inflation rate in the report from the Central Bank for September also showed an increasing trend, rising from 9.4% in August to 9.5% at the end of summer, indicating a short distance to a dual pricing situation. The most significant development in the reports from these two centers regarding inflation in September 2016 occurred in the monthly inflation rate, where after four months, the monthly inflation rate fell below 0.8%. According to expert evaluations, to maintain the achievement of a single-digit average inflation rate by the end of this year, monthly inflation rates must fluctuate below 0.8%, an event that has not occurred in the past four months. The monthly inflation rate for September 2016 in the Central Bank report decreased by 0.14 percentage points from 1.1% to 0.7%, while the monthly inflation rate for September this year in the report from the Statistical Center of Iran saw a significant decrease from 1.4% to 0.2%. Among the twelve groups of household consumer goods and services in the report from the Statistical Center of Iran, the price index of four groups still experienced double-digit increases, while eight groups of goods and services experienced single-digit inflation. Generally, in recent months, inflation in 'health and medical care' has topped the price increases at 11%, followed by the 'hotel and restaurant' sector at 10.7% and housing at 10.5%. The lowest inflation rate, as in previous months, pertains to 'communications,' which has an inflation rate of 1.5%. 'Recreation and culture' with an inflation rate of 5.7% and 'clothing and footwear' with an inflation rate of 6.7% ranked next in the lowest inflation rates for this month. Detailed examination of the inflation rates of various commodity groups in the Central Bank report also indicates that in the month reported, inflation for five of the twelve groups of goods and services remains in double digits. Among these groups, the highest inflation rate, recorded at 21.7%, pertains to the education group. Following the education group, the 'health and medical care' group stands at 18.1% inflation. The lowest inflation compared to the same month last year belongs to the 'communications' group, which experienced a negative inflation rate of 0.1%. The inflation of 'furniture, appliances, and household services' was also 4.5% in September of this year. The inflation rate for 'food and beverages' in the Central Bank report for this month was 9.5%, while the point-to-point inflation rate for 'food and beverages' in the report from the Statistical Center of Iran was recorded at 8.5%. The average price changes for the selected goods basket by Radio Farda also indicate that in this one-month period, the average price decreased by about 2% (1.82%). Table one shows that the highest price increase was for liquid oil, while the most significant price decrease was recorded for tomatoes. Changing the base for comparing the price changes of the selected goods basket from August 2016 to September of last year yields a completely different result, showing that the average price changes for this basket over the one-year period is 13.5%. The point-to-point inflation rate for domestic grade one rice, at 54.83%, recorded the highest price increase among these ten items, while the point-to-point inflation rate of -22.8% for tomatoes recorded the most significant price decrease in this one-year comparison. Details of price changes for the ten items listed in the selected goods basket by Radio Farda from September last year to September this year can be seen in table two. Seasonal price change comparisons for these items also resemble point-to-point changes. The average price of this goods basket in this summer compared to last summer has increased by about 15%. The leading price increase for domestic grade one rice was over 47%, while the most significant price decrease in seasonal comparisons for these items was recorded for tomatoes with a decrease of over 3%. Although the trend of inflation rate changes in September compared to August shows a trend close to continued decrease, concerns about the growth of liquidity rates in the Iranian economy as one of the potential inflationary factors, along with the government's efforts to stimulate the economy, could drive inflation rates upward. On the other hand, the Central Bank's report on the producer price index, which is a leading indicator for predicting inflation at the retail level, shows that the producer price index at the end of this summer experienced positive growth compared to the previous month, recording an inflation rate of 0.7%. The producer price index had typically experienced negative growth in previous months. The point-to-point production inflation rate in September 2016 also reached 3.6%. Additionally, according to this report from the Central Bank, the average producer inflation rate in September stabilized at 3.2%. Despite the concerning factors and signs for an increase in inflation rates in the coming months, low import inflation and the average low inflation rates in the countries from which goods are imported to Iran, along with Hassan Rouhani's emphasis in his speeches and media discussions in New York on maintaining the achievement of single-digit inflation, are among the reassuring factors regarding the future maintenance of this single-digit inflation achievement.