Economist warns of hyperinflation as Iran’s economy deteriorates

An Iranian economist has warned that hyperinflation could take hold unless effective negotiations with the United States lead to the lifting of sanctions.

“Without easing sanctions through productive negotiations, reducing inflation seems unlikely,” Ghodratollah Emamverdi told Etemad newspaper on Monday. He cautioned that if monthly inflation reaches 50%, Iran could face hyperinflation. Currently, monthly inflation is at four percent, while annual inflation is estimated to be over 40%.

On Sunday, the only government agency reporting inflation figures announced an annual rate of 35%. However, labor groups and analysts contend that the government downplays negative economic news, suggesting the real inflation rate is much higher.

Emamverdi noted that although Iran’s inflation rate has not yet reached the critical 50% threshold, continued sanctions and internal political tensions could push the economy into hyperinflation.

Majid-Reza Hariri, former head of Iran’s chamber of commerce, criticized the presidential administration’s inability to address the current crisis, saying the government is effectively paralyzed.

“We either have a government or we don’t, and I personally believe we are facing a state of no government. If the government cannot solve economic problems, no one is forced to be president or minister,” Hariri said. He added that everyone in the current administration was aware of the situation by mid-2024 but still chose to run for office or accept ministerial positions.

President Masoud Pezeshkian has argued that Iran’s complex and deep-seated economic problems are too vast for his administration to resolve, implicitly pointing to the impact of sanctions. Following Supreme Leader Ali Khamenei’s ban on negotiations with the United States in early February, Pezeshkian expressed his support for the decision, aligning himself with Iran’s ultimate political authority. As the new Iranian year approaches on March 20, the government faces the challenge of setting pay raises for millions of workers, including those in government and quasi-public enterprises. Workers are demanding wage increases of up to 70% to keep pace with soaring inflation.

The Iranian rial has lost more than 50% of its value in the past six months, driving expectations of even higher inflation. Currently, the minimum wage stands at about $120 per month, while semi-official estimates indicate that at least $400 per month is needed to support a family of three.

The government is considering a wage increase of less than 50%, which would still leave workers struggling to afford basic necessities. However, even a smaller pay hike could further fuel inflation.