Iran's economy is facing an unprecedented combination of high inflation and negative economic growth in the first half of 1405. Year-on-year inflation reached 89.8% in Shahrivar and annual inflation hit 73.6%, while the Statistical Center reported a negative economic growth of 10.1% for the first quarter of the year.
Inflation and Economic Growth Status
Mohammad Taghi Fayyazi, a macroeconomic analyst, believes that the upward trend of inflation began in Azar 1404 following the currency shock and the removal of the preferential exchange rate, and is once again intensifying after a brief pause. According to him, monthly inflation decreased after rising in Dey and Bahman, but reached 4.2% in Shahrivar, showing signs of a return to the upward trend of prices.
Fayyazi points out that the point-to-point inflation has increased from 52.6% in Azar 1404 to 89.8% in Shahrivar 1405, growing by 37.2 percentage points. Annual inflation has also risen from 42.2% to 73.6% during the same period. He considers the increase in the exchange rate as one of the factors exacerbating inflationary pressure, stating that the price of the dollar has risen from less than 180,000 tomans to over 256,000 tomans in approximately 40 to 45 days.
Decline in Foreign Trade and Its Effects
From this analyst's perspective, inflationary pressures do not solely arise from the exchange rate, as the decline in foreign trade has also impacted the economy. Exports of goods and services decreased by 35.7% and imports by 14.8% in the first quarter of the year. He believes that the continuation of these conditions could increase pressure on prices and economic activity.
The situation in terms of economic growth is also unfavorable. Overall economic growth in the first quarter is reported at -10.1%, and non-oil growth at -4.6%. Meanwhile, oil and gas extraction has faced a 26% decline, and the growth of the natural gas sector has been -21%.
Fayyazi attributes part of this decline to damage to infrastructure and believes that the effects of infrastructural destruction can extend beyond a short-term shock. The decline in foreign trade is not the only concern. Gross fixed capital formation has also decreased by 8.4%; a trend that Fayyazi states has continued over the past years.
This analyst ultimately emphasizes the simultaneous occurrence of inflationary and recessionary trends. According to him, Iran has experienced severe negative growth in the past, but the combination of significant negative growth with very high inflation has been unprecedented in recent decades.
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