80% Inflation in the Second Half of the Year

80% Inflation in the Second Half of the Year

According to Iran Gate, the Central Bank claims it has managed to extract the venom of inflation from the economy by controlling the growth of liquidity. However, economists believe that the recent report from the Central Bank not only doesn’t promise a reduction in inflation, but we should brace ourselves as we will face even more severe inflation in the coming months.

The release of the liquidity growth report for March 2023 by the Central Bank has raised the question among economic activists whether inflation will decrease or intensify in the upcoming months. The Central Bank has recently claimed that by controlling the growth of liquidity and reducing its speed, it has succeeded in preventing the intensification of inflation. However, economists reject this claim, pointing to the significant growth of the monetary base and trying to draw public attention to the breaking of an 11-year record in the share of money in liquidity.

What Does the Central Bank’s Report Say?

The latest report from the Central Bank indicates a more than 31% growth in liquidity at the end of 2023. This figure, compared to the previous year, shows a reduction of about 9% in liquidity growth. In other words, liquidity at the end of 2023 has surpassed 6,337 trillion tomans. This point, which has been heavily highlighted by the Central Bank, has also been headlined by government-supporting media as a reduction in liquidity growth.

Record-breaking by Raisi and Farzin

However, this report also contains other sections that need attention. Among the most important is the unprecedented increase in the ratio of money to liquidity over the last 15 years. According to the Central Bank’s liquidity growth report, the share of money in liquidity has exceeded 257%, setting a new record.

Comparing the statistics related to this economic component shows that in the last 15 years, the share of money in liquidity has never increased to this extent, and the Central Bank and the government of Ebrahim Raisi have set a new record in this regard. According to the published figures, the share of money from liquidity in 2023 reached 1,629 trillion tomans, showing a growth of over 65% compared to 2022.

Translation of the Central Bank’s Report

To explain more precisely what has happened, it should be said that liquidity is generally composed of money and quasi-money. However, what causes liquidity growth to be considered as intensifying inflation is the increase in the share of money from liquidity. Economists also believe that the rise in the share of money from liquidity is due to heightened inflationary expectations in society and the economy and can release the spring of inflation with greater force and intensity.

As mentioned, the share of money from liquidity in 2023 has exceeded 25%, which is unprecedented in the last 15 years. In other words, it can be said that in the last 15 years, the country’s monetary system has never been so susceptible to widespread and severe inflationary jumps. In the Ahmadinejad government, this inflationary pressure was also released at the beginning of the 2010s, leading to an unprecedented increase in prices.

Time Bomb in the Heart of the Economy

Perhaps the recent report from the Central Bank can be summarized in one sentence: the Iranian economy carries an inflationary bomb that could explode at any moment. A bomb planted in the heart of the economy due to the unprecedented increase in banks’ debt to the Central Bank, which could result in inflation rates of 70 to 80% in the second half of this year.

This unprecedented share of money from liquidity, which has been recorded following the unprecedented borrowing of the government from banks and also heavy mandatory facilities, could make it more difficult for Raisi’s team, which lacks proper academic backing, to continue managing the economy. As stated in this report, the banks’ debt to the Central Bank has been recorded at about 400 trillion tomans, which is almost equal to the government’s operational budget deficit in 2023.

The Central Bank’s explanations regarding this report also show that the reason for the heavy debt of banks to the Central Bank has been the government’s encroachment on their rial resources. This encroachment was done to pay government employees’ salaries and also the budget needed for agricultural and medical products. It should be noted that this government action means further growth of the monetary base and so-called high-powered money, which can pave the way for imminent inflation intensification.

Therefore, it can be expected that in the second half of the year, due to the intensified pressure from the budget deficit on the Central Bank and banks, inflation will be exacerbated because the Central Bank’s track record has shown that it has no qualms about printing money and expanding the monetary base to cover government expenses. As a result, it is expected that in addition to the inflationary nature of the country’s liquidity, we will face a devastating flood of high-powered money that could uproot the foundation of Iranian households’ livelihoods.

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