The Sound of Hyperinflation Approaching, Part Two

The Sound of Hyperinflation Approaching, Part Two

The Sound of Hyperinflation Approaching: According to Iran Gate, the accelerating pace of inflation growth in Iran has led many economists to express concern about the occurrence of hyperinflation in the country. Experts believe that the government’s and the state’s approach to managing the country’s economy will eventually lead to triple-digit and even quadruple-digit inflation in the Iranian economy.

Iran Gate has examined the possibility of hyperinflation occurring in Iran in a two-part series. The first part of this series dealt with the experiences of other countries in facing astronomical inflation rates. The present report also examines the likelihood of this scenario occurring in Iran. Many economists believe that the oil-based nature of Iran’s economy will not allow for several thousand percent inflation spikes, but triple-digit inflation is not an unexpected scenario.

The Sound of a Severe Crisis

Although inflation has chronically and consistently affected various segments of Iranian society, Iranian citizens have never witnessed inflation running rampant in the 40 to 50 percent range as they have in the past four years. In other words, the inflation rate has consistently been over 40 percent from 2019 to May 2023, with its fluctuations being highly upward. So much so that the inflation rate surpassed 50 percent in the last month of 2022, setting a new record in the history of modern governance in Iran.

However, if we take an exceptionally optimistic view of 2023 and estimate inflation at 40 percent for the current year, surprising results will emerge. Considering a minimum inflation rate of 40 percent for this year, it can be said that in the best-case scenario, the monthly and year-on-year liquidity growth will be similar to 2022 and even more.

In simpler terms, if the monthly inflation growth exceeds 5 percent and its year-on-year growth is higher than the 12-month average inflation rate, we must certainly prepare ourselves to hear the sound of approaching hyperinflation.

Money Reaching the Boiling Point

For a more precise examination, one must refer to the statistics and figures related to monetary variables. In the information published by the official sources of the Islamic Republic, everything seems fine, and there is nothing concerning. However, a glance at the official monthly inflation fluctuations statistics easily reveals that the statistics related to liquidity growth provided by the government and the central bank do not reflect reality.

On the other hand, the significant increase in money growth in the country has also raised concerns among many economists. This also indicates that the rial is approaching the boiling point, which is a term indicating that money is heating up.

Moreover, the liquid liquidity, which includes current deposits and cash, entered an upward phase from mid-summer last year. However, the same statistics recorded a growth of over 70 percent in December 2022 compared to the same period in 2021. In other words, the growth of quasi-money in term deposits was about 25 percent. Consequently, the ratio of quasi-money to liquidity has reached the 25 percent range.

The Year 2023: A Season for Hyperinflation

Considering the points presented in this report, it can be said that although Iran’s economy is passing through some of its most inflamed historical stages and concerns have intensified, one cannot expect hyperinflation to occur in 2023. However, this conclusion is based on the statistics and figures released by official sources.

This is why renowned economists like Farhad Nili have issued serious warnings about the occurrence of hyperinflation and a severe economic crisis in 2023. These experts, while questioning the official statistics, believe that the probability of the inflation rate reaching triple digits this year is much higher than what the figures released by the central bank suggest.

However, if we assume the accuracy of the data released by official sources, it can be said that the likelihood of hyperinflation occurring in 2023 is very low. Nonetheless, there are many variables that have no connection to monetary policy and are directly affected by the diplomatic stances of the government. In other words, the foreign policy of the Islamic Republic can also completely change the situation and act as either an obstacle or an intensifier of inflationary fluctuations.

Hyperinflation Awaits Iran’s Economy, Part One