Iran inflation up on ‘psychological’ impact

Iran's official inflation rate rose for the third month running, the central bank chief said on Saturday, reflecting the government's move to slash subsidies in an economy under pressure from international sanctions.

At 9.7 per cent, inflation is still well below the near-30 per cent of two years ago, but it has crept up from a 25-year-low of 8.8 per cent in August and many Iranians complain that prices are rising much faster in reality.

Central Bank Governor Mahmoud Bahmani told state radio the rise was due to the "psychological atmosphere" and that curbs on price hikes would stem the upward trend.

"Because the government has prevented an increase in the price of most goods we should expect a decrease in the inflation rate in future months," he said. "All efforts of the government and the central bank are to keep the inflation rate in single digits."

A possible surge in inflation is the biggest risk of what President Mahmoud Ahmadinejad has called "the biggest economic plan in the past 50 years" -- the phasing out of the $100 billion per year the state currently pays to keep down prices of essentials like food and fuel.

Some Iranians have already seen electricity bills rise as much as ten-fold over the last two months and motorists are bracing for a similar hit in the coming weeks or months when gasoline subsidies are slashed -- something analysts say could spark popular unrest.
Widely seen as a necessary step to reducing wasteful consumption of valuable resources, the subsidy reform has been under consideration for many years.

But it is coming into effect just as Iran faces tougher sanctions imposed by countries which fear it is seeking nuclear weapons -- measures which have hit foreign investment in its vital energy sector as well as its access to international financial services and ability to import gasoline.

An emergency plan to convert petrochemical plants to producing gasoline has stopped Iran's need to import up to 40 percent of its consumption, the government says, but that measure has had a knock-on impact on the chemicals sector.

The Oil Ministry's news website Shana reported on Saturday that the government had banned exports of petrochemical products for which there was outstanding domestic demand.

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