80% Inflation in the Second Half of the Year

Inflation of 80% in the second half of the year.

According to the Central Bank of Iran’s report, there has been an 80% inflation in the second half of the year. The report claims that by restraining monetary growth, they have been able to eliminate the venom of inflation from the economy. However, economists believe that the recent report from the Central Bank not only does not promise a decrease in inflation but also suggests that we should tighten our belts even more, as we will face even more severe inflation in the coming months.

The publication of the monetary growth report in Esfand 1401 by the Central Bank has raised the question for economic actors whether inflation will decrease or intensify in the coming months. The Central Bank has recently claimed that by restraining monetary growth and reducing its speed, they have successfully prevented inflation from intensifying. However, economists, by rejecting this claim, point to the significant growth in the monetary base and try to make the public aware of the 11-year record of the share of money from monetary growth.

What does the Central Bank report say?

The latest report from the Central Bank indicates a growth of over 31% in liquidity at the end of 1401. This amount shows a decrease of approximately 9% compared to the previous year’s growth rate. In other words, liquidity at the end of 1401 has surpassed 6,337 trillion Tomans. This point has been strongly emphasized by the Central Bank and supported by government-affiliated media, highlighting the decrease in liquidity growth.

Record-breaking by Raeesi and Farzin

However, this report also has other sections that should be noted. One of the most important sections is the unprecedented increase in the money-to-liquidity ratio over the past 15 years. According to the report, the growth of liquidity has exceeded 257%, setting a new record.

Comparing the statistics and figures related to this economic component shows that the money’s share in liquidity has never increased to this extent in the past 15 years. The Central Bank and the government, under the leadership of Ebrahim Raeesi, have set a new record in this regard. According to the published numbers, the share of money in liquidity reached 1,629 trillion Tomans in 1401, indicating a growth of over 65% compared to 1400.

Translation of the Central Bank report

To provide a more accurate explanation of what has happened, it must be said that liquidity generally consists of money and near money. However, what causes the growth of liquidity to be considered as an intensification of inflation is the increase in the share of money in liquidity. Economists also believe that the increase in the share of money in liquidity is due to the intensification of inflation expectations in society and the economy, and it can release the inflationary spring with greater power and intensity.

As mentioned, the share of money in liquidity reached over 25% in 1401, which is unprecedented in the past 15 years. In other words, it can be said that in the past 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 unleashed in the early 90s and led to an unprecedented increase in prices.

A ticking bomb in the heart of the economy

Perhaps the recent report of the Central Bank can be summarized in one sentence: Iran’s economy carries an inflationary bomb that can explode at any moment. This bomb is located in the heart of the economy due to the unprecedented increase in bank debts to the Central Bank, and it can result in recording inflation rates of 70% to 80% in the second half of this year.

This unprecedented level of money share from liquidity, which is the result of the unprecedented borrowing of the government from banks and heavy contingent liabilities, can make the task of managing the economy more difficult for the main team, who do not have a solid academic background. As stated in this report, the amount of banks’ debt to the central bank has reached about 400 trillion Tomans, which is approximately equal to the government’s operational budget deficit in 2023.

The Central Bank’s explanation regarding this report also indicates that the reason for the heavy debt of banks to the central bank is the government’s intervention in their rial resources. This intervention has been carried out with the aim of paying government employees’ salaries and obtaining the necessary budget for agricultural and medical products. It should be noted that this government action signifies excessive growth of the monetary base, also known as powerful money, which can pave the way for intensified inflation in the near future.

Therefore, it can be expected that in the second half of the year, due to the intensified pressure caused by the budget deficit on the central bank and banks, inflation will intensify. This is because the performance of the central bank has shown that there is no room for money printing and expanding the monetary base to cover government expenses. Consequently, it is expected that in addition to the inflationary nature of the liquidity in the country, we will also face the destructive floods of powerful money, which can undermine the livelihood of Iranian households.

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