Single digit Inflation: Bumpy road ahead
CBI’s latest stats shows the mean inflation rate fell under 10% after 68 months and stamped single digits. P to P rate is also on its decade low: 6.8%. It seems the administration stayed on the promise, yet the question is to what cost.
CPI came to 240.9 in June, however the opposition insists that there is only a recession left to deal with. It is noteworthy to express that nations like Venezuela, contrary to a deep depression, are struggling with even three digit inflation.
There are a few different scenarios where inflation can cause unemployment. However, there is not a direct link. Inflation can cause unemployment when:
- The uncertainty of inflation leads to lower investment and lower economic growth in the long term;
- Inflationary growth is unsustainable leading to a boom and bust economic cycle; and,
- Inflation leads to decline in competitiveness,
As it stands this is not the case for Iran right now because falling inflation is just about to balance the anxiety out from libertine price movements of recent years.
Putting the politics aside, it is deeply believed that only with proper tools to stabilize the rates, should it be possible to earn positive from this achievement. Up to the point there were nary a time that reaching single digit inflation latched stability of the economy. Fiscal over monetary policies and CBI dependence were always to blame for the chaos. This time, too, it could be a shaky road ahead.
Last year liquidity rose to 30% and with interest rates to fall it can pose a threat. Part of long term bank deposits will flow to parallel markets which hurt the economy structure. Merely targeting the rates for the following years to come, mid proper monetary, currency and credit tools will cut the risks lower.
In the Market
The stock market gallivanted higher in today’s trading session, yet the upbeat attitude attenuated near the end. The index sat higher than its recent resistive tops, surrendering 0.10% for the day. TEDPIX rose more than 70 point to stand on 73,743.50, brought a little hope among investors.
Banks could not hold yesterday’s gains as the major shareholders decided for a sell off. More than 10 mn shares of Mellat bank traded and “VabeMellat” closed at IRR 2,318. Saderat, Day and Tejarat followed the trend as well, made a bitter day for the sector. According to analysts there were no actual catalysts behind the bearish trades rather than uncertainties around what will happen to banks after interest rates fell.
The Auto sector jumped 1.95% all because of Saipa Group better than expected trades. 109 mn shares of the auto giant vended till the last seconds, left 65 mn buy orders in the queue and closed at IRR 1,204. Almost all the industry’s tickers followed the trend. “Khosaz” and “KheMehvar” were among the losers and slid more than 2.5% each.
Metal products were on pace for some of their best gains in years today. “Farak” and “Fazar” jumped 5% each with buy orders left on queues. There chatters of new contracts for Arak Machinery Co. and analysts express that as the catalyst behind the move.
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