Iranian economist: petrol prices do not affect inflation in Iran

Finance Materials 1 May 2019 17:10 (UTC +04:00)

Baku, Azerbaijan, May 1

By Elnur Baghishov – Trend:

The inflation in Iran is not caused by petrol prices, the problem rather is in the national currency itself, said Teymur Rahmani, economist and lecturer at the University of Tehran, Trend reports referring to Tasnim News Agency.

According to Rahmani, there is a clear opinion on elimination of the state subsidies for petrol, but no steps are taken so far. In his words, many economists believe that abolishing subsidies will lead to the rise of inflation. However, this is a wrong approach, he believes.

"In Iran, the state sets fixed prices to support low-income citizens and ensure their well-being of citizens," he noted. "However, around the world, low-income citizens are supported through other methods."

In the cases of the state intervention in price formation, negative consequences occur elsewhere, the Iranian economist added. "Subsidies, including those on petrol, create a kind of imbalance and deficit in the economy," he said.

According to some Iranian experts, the fact that petrol prices have not increased has led to a rising number of cases of petrol being smuggled out of the country. However, if petrol prices increase, inflation rates will not be seriously affected, the experts think, Rahmani added.

Other experts who disagree with this point of view believe that an increase in petrol prices will have serious repercussions for the Iranian economy, considering the already fragile condition it is currently in.

At present, the price of 1 liter of petrol in Iran is 10,000 rials (app. $0.23 at Iran’s official exchange rate, $0.06 at black market prices).

Iran experienced a strong devaluation in 2018. As such, the price of $1 rose from 35,000 rials to 220,000 rials in the black market. With the steps taken by the Iranian government, the price of $1 fell to about 100,000 rials, but now it stands at around $140-145,000.