Why Iran could be approaching hyperinflation in coming years

Al-Monitor | Navid Kalhor: The asset markets in Iran have been witnessing sharp surging spikes in prices in the recent weeks and months on the back of astonishingly rising money supply. The Tehran Stock Exchange Index, with a return of more than 147%, was the best performing market, followed by the gold, foreign exchange and housing markets with a return of 30.5%, 24.8% and 19.1% respectively in the spring (March 20-June 20).

Some experts say they expect the country’s volume of liquidity, which was about 15.3 quadrillion rials ($63 billion) in 2018, to have doubled to 30 quadrillion rials ($127.6 billion) by the end of current Iranian year, which ends March 19, 2021. According to the latest report issued by the Central Bank of Iran, liquidity had reached 26.5 quadrillion rials ($112.7 billion) by the end of the first quarter, an alarming 33.9% spike in liquidity in rial terms compared with the same period last year. This is stoking fears of higher levels of inflation.

Some economists say they believe that doubling of the amount of liquidity over the period of just three years has set the stage for a dangerous economic situation. Should this trend continue and not be curbed with proper macroeconomic policies, it is likely that chances to eliminate rampant inflation might be missed and the failure could eventually lead to hyperinflation such as Venezuela is experiencing. Those economists say the performance of the Iranian economy in recent years indicates that two decisive factors have already occurred. First, liquidity has been climbing significantly in recent years. Second, with the considerable reduction in oil revenues, the relationship between liquidity and inflation has become more strongly connected as the time interval for liquidity to impact inflation has dramatically shortened.

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