Top 10 Things You Should Know About Iran’s Hyperinflation

Here’s an interesting fact sheet via Steve Hanke, professor of economics at John Hopkins:

1. Iran is experiencing an implied monthly inflation rate of 69.6%.

  • For comparison, in the month before the sanctions took effect (June 2010), the monthly inflation rate was 0.698%.

2.  Iran is experiencing an implied annual inflation rate of 196%.

  • For comparison, in June 2010, the annual (year-over-year) inflation rate was 8.25%.

3.  The current monthly inflation rate implies a price-doubling time of 39.8 days.

  • For certain goods, such as chicken, prices may be doubling at an even faster rate.

4.  The current inflation rate implies an equivalent daily inflation rate of 1.78%.

  • Compare that to the United States, whose annual inflation rate is 1.69%.

5.  Since hyperinflation broke out, Iran’s estimated Hanke Misery Index score has skyrocketed from 106 (September 10th) to 231 (October 2nd).

  • See the accompanying chart.

6.  Iran is the first country in the Middle East to experience hyperinflation.

  • It is the seventh Muslim country to experience hyperinflation.

7.  Iran’s Hyperinflation is the third hyperinflation episode of the 21st century.

  • The first was Zimbabwe, in 2008. The second was North Korea, whose episode lasted from 2009-11.

8. Since the sanctions first took effect, in July 2010, the rial has depreciated by 71.4%.

  • In July 2010, the black-market IRR/USD rate was very close to the official rate of 10,000 IRR/USD. The last reported black-market exchange rate was 35,000 IRR/USD (October 2nd).

9.  At the current monthly inflation rate, Iran’s hyperinflation ranks as the 48th worst case of hyperinflation in history.

  • Iran currently comes in just behind Armenia, which experienced a peak monthly inflation rate of 73.1%, in January 1992.

10.  The Iranian Rial is now the least-valued currency in the world (in nominal terms).

  • In September 2012, the rial passed the Vietnamese dong, which currently has an exchange rate of 20,845 VND/USD.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. Djavad Salehi-Isfahani, Professor of Economics at Virginia Tech who has lived in Iran talks about “multiple exchange rate system.”

    He also makes an interesting point about this:

    “First, there is a difference between the rate in the parallel market and the average rate of exchange for the country because of the multiple exchange rate system. Second, the sharp rise in the value of foreign currencies in the parallel market was not a classic run on Iran’s currency, but rather caused by reduced infusion of currency into the parallel or free market. Third, Iran’s economy is not on the verge of collapse, as some people were saying (or hoping). In short, I tried to define the currency crisis in Iran in its own terms rather than the textbook cases from East Asia or Zimbabwe that immediately come to mind. The one factor that explains most of the difference is oil, which means that the supply of foreign exchange is not in diverse hands but concentrated in the hands of the government. While many people maybe buying and selling dollars at 35,000 rials, the government can decide to sell its dollars at a lower rate.”
    http://djavad.wordpress.com/2012/10/05/more-on-the-falling-rial/#more-1841
    I posted this in the other thread I think.

    It will be a great case study, But I also feel for the people that are stuck in the middle of all this. Sad for them

    • Some other interesting points from Djavad Salehi-Isfahani are:

      ” currency crises in oil exporting countries are different from those in which private sector earns the bulk of the foreign exchange.”

      “With its diminished oil revenues the government can still shield large sections of the economy from the adverse impact of large devaluations in the the parallel market.”

      “the currency crisis did not amount to economic collapse”

      ” Iran’s government is in a position to decide who gets hurt more and who get off with less pain. For example, it has decided that keeping chicken production going is more important than paying the tuition of thousands of students abroad”

  2. so the contratrian investment here would be to buy iranian rials for the rebound!

  3. why would you buy a currency of a country being openly targeted by US economically? The collapse is clearly sanctions driven. The only reason to buy it if you think sanctions are about to get lifted.

    • If the problems in Syria spread to Iran I would go for oil investments because the Rial could easily go away, but the need for oil will not. But i’m very conservative. I believe the people in Iran are going to get very fed up very soon.

      • Iran can still import food with its oil revenues even if it has to do the trade completely in gold. But if a war destroys Iran’s ability to export oil, the country’s economy could implode in the kind of mass starvation that took place at the Battle of Stalingrad and elsewhere in WW II.

  4. he’s wrong about point 6. in the early 80′s israel suffred from triple digit inflation, up to 445% in 1984.

          • I consider Israel as a piece of land where those tied to a primitive belief system residing in their reptilian brain area in which is useful when needing to suspend rational thought, continue to kill one another.

            Reptilian brain = God center.

            • So what kinda brain is it that enters their email address where their name should be? ;)

              • Actually, I was kinda wrong; I thought the name “Israel” Ment With God but it means I”God contended”…One who struggles or wrestles with God.

                • Actually, there are some Jews that are opposed to the current State of Israel: http://rense.com/general51/agz.htm

                  Being overly eager for the coming of the Messiah or the second coming of Jeshua or the first coming of an Iranian savior is going to get a lot of people killed.

                  • Regardless, If you have half a mind, you have to postulate what Golda meir said: “Let me tell you something that we Israelis have against Moses. He took us 40 years through the desert in order to bring us to the one spot in the Middle East that has no oil!”

                    Man that even to this is divine..

  5. I’m okay with all of it, except I can’t reconcile the first three item in my mind. Item 3 says the prices will be doubling every 39.8 days. I I spend 1 rial today, then I would have to spend 2 rial on day 40. that’s 100% inflation. By day 80 that 2 rial would have to be 4 rial. That’s 400% in 80 days. Why is the 365 day rate only 169%?

    Start with 1 rial. Double it every 39.8 days and you’ll have about 575 rial after a year. That closely matches my calculations with monthly rate of 69.6%.

    Looks to me like the annual rate is close to 57000%. What am I missing?

    • This may all be a temporary situation and I agree with Dr.Salehi Isfahani’s point. While rates went as high as 35,000 on Oct 2nd, on Saturday the rate was reduced to 28,000 so some people were running to sell their dollar reserves while it’s still high. I think it’s a matter of time before the government takes some action otherwise it will have to face a very poor and angry population and I believe the ruling government will do anything to protect itself at this point…

  6. nice discussion about Israel. Very classy and rellevant on all fronts. The article talks about 21st century inflation outbreaks. 1984 is 20th century in most calendars :-(.