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Iran’s Rial Hits All-Time Low and Inflation Soars to 147%

Iran’s Rial Hits All-Time Low and Inflation Soars to 147% thumbnail

Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

The Iranian rial just hit an all-time low (see chart below). The Islamic Republic of Iran remains in the ever-tightening grip of an economic death spiral. The economy is ever-vulnerable because of problems created by the last Shah, and added to massively by the incompetence and shenanigans of the theocratic regime. Indeed, the economy is more vulnerable to both internal and external shocks than ever. How fast the death spiral will spin is anyone’s guess.

With the collapse of the rial, Iran’s inflation has surged. The most important price in an economy is the exchange rate between the local currency and the world’s reserve currency — the U.S. dollar.  In Iran, the IRR/USD exchange rate, represents the most important price. By using active and available black-market (read: free market) data for the Iranian rial, I have transformed the black-market exchange rate into accurate measurements of country wide inflation. The economic principle of Purchasing Power Parity (PPP) allows for this reliable transformation.

The chart below shows how Iran’s implied annual inflation rate has surged to an annual rate of 147% with the collapse of the rial’s value against the U.S. dollar. That’s a whopping 137.3% points higher than the official rate of 9.7%. And for Iranians, these contrasting figures bring back a line from the Marx Bros. “Who are you going to believe, me or your lying eyes?”