Inflation, subsidy reform hit Iran

Outside his butchery in the south of Iran’s capital, Ali cuts up a sheep carcass for customers who, like him, have seen inflation and subsidy reform devour their purchasing power.

“My sales have fallen significantly -- almost by half,” Ali, 50, told AFP.

“What can I say? I am a butcher and you may not believe me, but sometimes I don’t eat meat for a week,” he added. “Everything has gone up in price.”

Inflation is making an unwelcome comeback globally -- stoked by high energy and food prices, driven largely by Russia’s invasion of Ukraine, a major wheat producer, and by related sanctions on Moscow. But Iran has been wrestling with rampant price growth for years, exceeding 30 percent annually every year since 2018, according to the International Monetary Fund.

That was the year US president Donald Trump yanked Washington out of a nuclear deal between Iran and world powers and began reimposing biting sanctions, sending the currency into a tailspin even before he unilaterally banned Iran’s oil exports.

Negotiations over the last year or so have sought to bring the US -- under Trump’s successor Joe Biden -- back inside the deal and convince Tehran to re-adhere to nuclear commitments it has progressively walked away from.

But those ever-delicate efforts have been deadlocked since March, and an escalating spat between Iran and the UN’s nuclear watchdog could reduce chances of reviving the agreement.

Subsidy cuts compound misery

After dividing the cuts of meat, Ali hands Asghar, a retired government employee, a plastic bag containing enough for him and his wife.

“The price of everything has gone up, including meat,” lamented Asghar, 63. “We used to buy more. Now everyone is buying less -- everyone is under pressure.”

Economic analyst Saeed Laylaz believes price growth in Iran has exceeded 40 percent annually since 2018 -- higher than that calculated by the IMF.

It has lately been fuelled further, he says, by “the sharp increase in global inflation” driven by fallout from the war in Ukraine and by Iran’s cash-strapped government in mid-May enacting the “radical reform” of slashing subsidies.

The expert, who has in the past advised Iranian presidents, said the main policy shift by the government of President Ebrahim Raisi was to abolish a subsidised exchange rate for imports of household essentials -- wheat, cooking oil and medicine.

Introduced in mid-2018, this “preferential” rate was fixed at 42,000 rials to the dollar, cushioning citizens from the savage black market depreciation of the local currency that stemmed from the US withdrawing from the nuclear deal.

But with the exchange rate on the black market exceeding 300,000 rials to the greenback and global food prices soaring, the arrangement became unaffordable. “It is estimated that if Iran wanted to continue reckless spending of hard currencies this year like the previous years, the country would have needed $22 billion dollars at the preferential rate,” he said.

“Even in the event of reviving the nuclear agreement... the government had no choice but to cancel the preferential rate,” he added.