The inflation rate in Iran reached 45.2 percent in August 2021, the highest rate in 26 years. At a time when Tehran continues to expand its nuclear program, the inflation rate shows that even though Washington’s maximum pressure campaign is losing momentum, it still moves forward under its own inertia.
According to the Statistical Center of Iran, in the Iranian month of Mordad — approximately August — the country’s 12-month average inflation rate was 45.2 percent. The figure was 44.5 percent for urban households and 48.7 percent for rural households.
Inflation in Iran has risen steadily since President Donald Trump withdrew from the 2015 nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA). In 2020, inflation dropped in relative terms as deflationary forces dominated the global economy due to the massive pandemic-related slowdown. However, in 2021, global deflationary forces started receding, and inflation in Iran has surpassed its 2019 level.
The record-high inflation stems partly from the increasing price of Iran’s imported goods. According to the Statistical Center of Iran, the rial-denominated four-quarter point-to-point import price index for spring 2021 rose by 505.9 percent; the rate for the dollar-denominated index was 58.6 percent.
This increase in import prices directly generates inflation in two ways. The first is by raising the price of imported consumer goods. The second is by driving up the price of imported inputs used by domestic manufacturers to produce goods.
The massive increase in the import price index is partly the result of the depreciation of the rial. The price of one U.S. dollar in Iran was 161,400 rials on April 30, 2020. A year later, the U.S. dollar traded for 232,500 rials. On September 10, 2021, one U.S. dollar traded for 278,800 rials.
The producer price index (PPI) has also increased. The four-quarter point-to-point PPI in spring 2021 rose by 73 percent. Annual PPI inflation stayed at 60.4 percent, and the quarterly rate was 10.1 percent.
Besides inflation, Iran’s other economic indicators send mixed signals about the country. The labor market improved slightly in comparison with last year as the initial COVID-19 shock faded. In spring 2021, Iran had 400,000 more workers than in spring 2020. However, the number of workers today is 1.5 million below what it was in spring 2019.
The unemployment rate stood at 8.8 percent for spring 2021, but the labor participation rate — reflecting people who either have a job or are seeking one — was only 41.4 percent. The labor participation rate for spring 2021 was slightly above its spring 2020 level, 41 percent, but was still well below its spring 2018 level, 45.2 percent, recorded before the start of the U.S. maximum pressure campaign.
Iran’s economy has also been growing. The latest quarterly data showed that the economy grew by 6.8 percent in winter 2021. The bulk of the growth came from the oil and gas sector, which grew by 32.8 percent, resulting from Washington’s loose enforcement of oil sanctions and increased Chinese imports of Iranian oil.
The Biden administration has not been keen on increasing or maintaining pressure on Tehran, and Iran’s economy is showing some degree of improvement. However, the record-high inflation shows that despite the loose enforcement of U.S. sanctions, Iran’s economy is still under pressure, since the structure of the maximum pressure campaign has remained in place.
Recognizing that the Biden administration is eager to revive the JCPOA, the regime in Tehran has been emboldened, doubling down on the expansion of its nuclear program. While Washington’s leverage over Tehran has decreased, it is not too late for the Biden administration to turn the ship around and put its Iran policy on the right path by maximizing the economic pressure on Tehran.
Saeed Ghasseminejad is a senior advisor on Iran and financial economics at the Foundation for Defense of Democracies (FDD), where he contributes to FDD’s Iran Program and Center on Economic and Financial Power (CEFP). For more analysis from Saeed, the Iran Program, and CEFP, please subscribe HERE. Follow Saeed on Twitter @SGhasseminejad. Follow FDD on Twitter @FDD and @FDD_Iran and @FDD_CEFP. FDD is a Washington, DC-based, non-partisan research institute focusing on national security and foreign policy.