TEHRAN -- Although inflation is a global issue but it is more severe in Iran than most countries mainly due to U.S. sanctions and now that E3 (France, Germany and UK) triggered snapback, UN sanctions came into effect from Saturday, three months after Israel and the U.S. bombed Iran. The snapback sanctions will make matters pertaining to commodity prices worse. The imposition of snapback sanctions essentially kills Joint Comprehensive Plan of Action (Iran nuclear deal). Iran has recalled its ambassadors from E3.

In fact, JCPOA became meaningless when U.S. President Donald Trump announced that the United States was withdrawing from the JCPOA and imposed “maximum pressure” sanctions during his first term in 2018.

President Masoud Pezeshkian was in New York to attend the 80th session of UN General Assembly when UN Security Council on Friday rejected a last-ditch effort to delay reimposing sanctions on Iran over its peaceful nuclear program. Pezeshkian, a cardiovascular physician, called the act “unfair, unjust and illegal”. 

With an annual inflation rate of 34.5 percent in June, the Statistical Center of Iran reported the cost of essential items roses over 50 percent over the same period. News agencies reported that the price of rice rose more than 80 percent on average, hitting 100 percent for premium varieties. The imposed war drove chicken up 26 percent.

As Iran’s economy braced Saturday for the reimposition of the UN snapback sanctions, it will be the ordinary people who will increasingly find themselves priced out of the basic commodities.

Iran’s rial currency already sits at a record low, the snapback sanctions will increase pressure on food prices and making the daily life of the citizens even more challenging.

In today’s challenging environment, expectations of a new round of fighting with Israel and U.S. is in the air. In this shadow of war and due to this uncertain situation people have been hoarding on basic goods increasing the prices further more and raising the inflation.

The aftermath of the June 12-day war drove up food prices putting the already expensive meat along with other basic necessities out of the reach of poor families.

On Saturday, during a conversation with the grocery store manager, Mohammed said the “country has never faced such a challenging situation, even during the eight-year Iraq-Iran war and the post 1979 Islamic Revolutionary era.”

Today runaway inflation and soaring prices are the main topic that concern people and conversations in public arenas like the metro, taxis, buses, cafes, etc. Inflation has been a global issue after coronavirus pandemic which disrupted supply chains resulting in a largely unexpected surge in inflation, increasing global food prices like staples including vegetable oils, wheat, cheese and sugar and other basic commodities.

According the Statistical Center of Iran, the country’s inflation rate stood at 34.5 percent in the twelve-month period ended at the end of third Iranian month of Khordad (May 22 – June 21, 2025). The Consumer Price Index for the month of Mordad (June 22 – Jully 23) stood at 36.3 percent a 40 percent jump compared to same period last year. The economic growth rate for last Iranian year (1403 that falls between March 2024-2025) stood at three percent.

With a month-on-month increase of 3.3 percent and an annual rate of 36.3 percent inflation reflects struggles of millions of Iranians. Pundits believe the real inflation rate is higher.

Rial redenomination

Rial redenomination has been in the cards for more than a decade. The debate for removing zeros from domestic currency was first proposed in 2016 and launched in 2021. One single Iranian toman is equivalent to 10 rials. The currency reform plan originated during the late President Ebrahim Raisi’s tenure. His successor, Masoud Pezeshkian, revived the initiative last month. It aims to slash four zeros from the currency.

Majlis (Iran’s parliament) is due to vote on a bill to renew the process in a bid to curb persistent runaway inflation.  On August 3, the Economic Commission of the parliament approved a revised version of the bill but no final decisions and approvals have been made. The commission backed keeping the name rial instead of changing to toman.

The current bill will have to pass a parliamentary vote and gain the approval of the Guardian Council, a body empowered to vet legislation.

Head of the Economic Commission, Shamseddin Hosseini, has stated the bill required revision following the enactment of the new Central Bank law in 2023.

Hosseini told reporters that the “currency unit will be worth IRR10,000, effectively removing four zeros from current denomination. One new rial will be subdivided into 100 ‘qerans’, reviving a historic unit as the fractional denomination.”

The International Monetary Fund (IMF) projects inflation to reach 43.3 percent in 2025. The runaway inflation has eroded people’s purchasing power significantly. 

The “barbari” bread in Somaye area in central Tehran was 10 tomans a few months ago has now doubled in price. Medium quality rice was 130 tomans per kilogram six months ago has now more than doubled. The hike in the prices of these basic staples has been largely attributed to the drought which engulfed the whole country. Over the past three decades the temperature has risen by 1.8C and over the past five years there has been a 30 percent reduction in rainfall. Right now, we are in the fifth consecutive year of near drought.

The Seventh National Development Plan (2023-27) sets an ambitious target of eight percent annual economic growth. However, due to lack of domestic and foreign investment and out of control inflation such economic trajectory is unattainable. IMF has projected 0.6 percent economic growth in Iran for 2025, up from its previous forecast of 0.3 percent. IMF attributed factors such as regional instability, the aftermath of the Iran-Israel conflict, and high inflation. Iran’s economic growth in 2024 was 3.4 percent.

Conclusion

Will reducing zeros from the currency reduce inflation? While the move will not guarantee reduced inflation but it will make the transactions and trading simpler. To address inflation and currency depreciation, redenomination has to be followed along with structural changes in an environment of economic growth, stability and high productivity. The biggest obstacles for such environment are sanctions and war.

What other countries have removed zeros from their currencies due to hyperinflation? Brazil, Argentina, Bolivia, Mexico, Turkey, and Zimbabwe have removed zeros from local currency. Currency redenomination is accompanied by economic reforms to be effective.

Brazil introduced new currency, the Real, in 1994. Argentina undergone multiple redenominations, including in 1983, 1985, and 1992. Bolivia removed zeros in 1963 and 1987 after periods of hyperinflation. Mexico introduced the new peso with three fewer zeros in 1990s. Turkey removed six zeros off the lira in 2005. Zimbabwe removed ten zeros turning 10 billion dollars into one after hyper-inflation, but it did not solve the underlying process.

Focusing on neighboring Turkey. In August the Turkish annual consumer price inflation dipped more than expected to 33.52 percent, according to the data from July. The Reuters poll showed the monthly inflation rate for July was 2.4 percent, with the annual rate seen at 34.05 percent for Turkey.

Inflation in the Persian Gulf Arab countries was expected to be 1.7 percent in 2024. The primary driver of inflation is the housing sector, which saw a 5.7 percent increase in 2024, with Saudi Arabia experiencing the highest rate of 8.8 percent. Dubai recorded a monthly inflation rate of 2.4 percent in June followed by Saudi Arabia and Kuwait, both registering 2.3 percent in June.

According to the Statistical Center for the (P)GCC region’s average inflation rate fell to 1.7 percent in 2024, down from 2.2 percent in 2023. Inflation in the oil exporting Persian Gulf states is moderated by subsidies, energy exports, stable currency regimes, and lower sensitivity to some fluctuations in global food or energy prices.

In August, Reuters reported that Syria will issue new banknotes, removing two zeros from its currency in order to restore public confidence in a severely devalued pound.

Taking a look at the U.S. inflationary pressures intensified in June, the annual U.S. inflation rate climbed to 2.7 percent, up from 2.4 percent in May.  The upstick was primarily attributed to rising prices in core goods, which hit their highest level in two years. These increases are largely attributed to new tariffs which Trump introduced on what is referred to as the “Liberation Day” on April 2, 2025

Circling back to Iran, another reason for inflationary pressures is budget deficits financed by money creation. The government often covers shortfalls by borrowing from the central bank, leading to excess liquidity. Iran’s money supply has grown much faster than GDP, fueling price increases.

If I list most of the above causes for inflation in Iran they can be listed as: sanctions and more sanctions; excess liquidity, shadow of war, hoarding, drought, restricted oil revenues due to sanctions on oil exports; higher cost of imports due to sanctions; non-performing loans; soaring real estate prices, low foreign and domestic investment, etc.