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Subsidy Reform Plan and Inflation

Service : Economy
TEHRAN, March 30 (ICANA) – A question which has occupied the minds of Iranian economy experts is how much would be the inflation rate in the country based on a 600 trillion rials (almost 60 billion dollars) revenue to be recovered from implementing the subsidy reform plan in 1390 (new Iranian year began on March 21).
Wednesday, March 30, 2011 10:16:25 PM
Subsidy Reform Plan and Inflation

From the beginning of the execution of the subsidy reform plan about four months ago, various Iranian institutes and organizations tried to estimate the inflation rate resulted from the implemented plan. Figures and statistics introduced by these organizations were so different and hard to believe. According to an estimate, inflation rate would stoke by 15 percent while another estimate said the rate would be 68 percent. In the meantime, a number of experts predicted that the inflation rate would be between the aforementioned rates, however none of them were accepted as the last word on the issue.

The Majlis (Iranian Parliament) Research Center introduced four scenarios to predict different inflation rates. They turned to the most controversial reports on the consequences of putting the subsidy reform plan into practice. The first scenario is based on a 100 trillion rial (almost 10 billion dollars) revenue out of the plan which would increase the inflation rate to 23.6 percent.

The second scenario was arranged based on a 150 trillion rials in revenue to be recovered from the execution of the plan which would raise the inflation rate to 29.9 percent. The respective figures for the third scenario are 200 trillion rials (almost 20 billion dollars) with a 37.6 percent inflation rate and finally the fifth scenario predicted that a 400 trillion rial revenue will stoke the inflation rate by 68 percent. 

As the manager of an institute tasked with estimating the inflation rate, Mahmoud Bahmani, the governor of the Central Bank of Iran (CBI) initially did not tend to opine on the issue, however he finally yielded to the demands of the journalists and declared that the inflation resulted from executing the subsidy reform plan would be 15 percent plus the current inflation rate, if only the big national economic project is implemented based on a 400 trillion rial (almost 40 billion dollars) revenue.

The subsidy reform plan was put into practice from late December when the Central Bank of Iran announced that the inflation rate was 10.8 percent. According to Bahmani's statement if the inflation rate caused by the implementation of the subsidiary reform plan is 15 percent added to 10.8, in late December 2011 the inflation rate will be near 26 percent.

Statesmen however seem to be more optimistic about the issue, since for instance in his recent press conference, Vahid Mombaini, vice president of the strategic planning and monitoring affairs claimed the inflation rate in the new Iranian year will be increased simply by two to four percent. The last inflation figure announced by CBI was 11.6 percent and that of the Iranian month of Bahman (late January to late February). Accordingly the inflation rate of the month of Esfand (ended on March 20) is estimated to be about 12.5 percent. Based on Mombaini's claims in the new Iranian year the inflation rate would stand between 14 to 16 percent, a figure which analysts deem unrealistic, reported khabaronline.ir.

In the final analysis both suggested inflation rates, 16 percent by Mombaini and 26 percent by Bahmani do not sound realistic, although that of Bahmani looks to be more close to reality. Because of the fact that the revenues to be recovered from executing the subsidy reform plan in the new Iranian year was set as 600 trillion rials based on the oil price of 80 US dollars per barrel (with one US dollar selling for 10500 rials).

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