Gap Between Wages And High Inflation Widen In Iran

Iran’s government has proposed a 20 percent pay raise for civil servants next calendar year (starting March 21), despite a rampant inflation of over 46 percent.

Experts say the low increase proposed by the government reflects its need to reduce expenditures and to avoid a higher budget deficit, which is at least 50 percent.

According to a report prepared by the parliament’s research center that was released last week, this year’s budget deficit may amount to $13.5 billion, or 30 percent, but independent analysts believe the deficit is closer to half the budget. In the current year the government has failed to secure half of the revenues expected from oil and gas sales and the same trend is expected to continue in the coming year.

Budget deficit amounted to $10 billion in the first four months of the current year, the report said. 

The proposed small increase in civil servants’ salaries is worrisome to workers, who need to afford basic necessities amid the high inflation environment. Most of these workers are civil servants or employed by government-owned and pseudo-governmental companies.

Iran witnessed several rounds of anti-regime protests and workers strikes since 2017, and the economic crisis is believed to be the main factor in driving hopeless young people to rebel.

The Statistics Center of Iran (SCI) and the Central Bank claim that the rate of annual inflation has dropped to 45.5 percent, nearly the same level as a year ago, and the economic growth rate rose to above six percent between April and July. But official figures tend to underreport bad news and cannot be independently verified. One thing which is clear is that food prices have risen much faster than the official inflation rate, in some instances hitting 100-percent in 2022.

Many reports by local media say prices for some food items has also doubled in 2023, since the same time last year. For instance, based on the figures released by the SCI, the price of mutton and beef have risen by 151 and 132 percent respectively this year.

Economist Hadi Haghshenas, speaking to local media, expressed concern about the “alarming” rate of inflation and said the reason for the small drop in the rate of inflation is a drastic reduction in people’s purchasing power rather than economic improvement as the share of food and housing in the basic commodities basket has risen from around 50 percent to between 70 and 80 percent.

People’s actual experience of the economic realities is in contradiction with the figures that the government announces, he told the reformist Shargh daily, adding that the budget deficit, high inflationary expectations, and “ambiguity in foreign policy” all indicate that improvement in economy should not be expected.

Sanction imposed by the United States since 2018 have plunged Iran into economic crisis, but efforts by the Biden administration to resolve differences with Tehran over its nuclear program have failed so far.

Experts say the chasm between the rich and the poor is increasing, and the middle class is vanishing fast despite the promises of President Ebrahim Raisi’s government to “increase social justice”.

High inflation of over 40 percent in the past few years has been taking its toll on the poor and the middle class who are increasingly finding it impossible to afford some basic needs, particularly food and housing, as the increase in salaries and wages has not kept up with inflation. The share of education and leisure have accordingly dropped to a record low in the past few years.

Naser Rahchamani, a former member of the Supreme Labor Council, a body made of representatives of workers, businesses and the government, which is responsible for setting the minimum wage of workers, says the society has hugely become poorer this year and the purchasing power of workers has drastically dropped in comparison with previous years.

“It seems that the government has shut its eyes to the livelihood problems of the workers who constitute half of the country’s population [with their families],” Rahchamani told the reformist Etemad newspaper.

“Production did not increase…and inflation remained high,” he said while stressing that the cost of sanctions weighed on the shoulders of workers who bore the brunt of high prices.