Summary of today's editorial "Economic World":
Inflation containment requirements in wartime conditions.
Dr. Farzana Ahmadian-Yazdi; Member of the Faculty of Economics, Ferdowsi University of Mashhad.
The awarding of the 2026 Nobel Prize in Economics to Robert Hall and Michael Woodford re-emphasizes the key principle that the central bank cannot guarantee price stability without coordination with the financial position of the government. When the financial obligations of the government do not match the revenues and the deficits are financed through the monetary base, "fiscal control" is created and activates inflationary expectations before the implementation of the policy; The situation in Iran's economy has worsened due to structural imbalance and dependence on oil. The recent war with America and Israel, as a multidimensional shock, amplifies inflation in four ways:
1. Fiscal and budget gap: Defense and reconstruction costs have increased, oil and tax revenues have decreased, and the risk of a deficit in the central bank's resources has increased.
2. Currency shock: A reduction in the effective supply of foreign currency, a disruption in the return of export profits and a jump in speculative and cautious demand, raising the price of the currency and import costs.
3. Inflationary expectations: increasing uncertainty causes companies to adjust prices in advance, households rush to buy goods and escape from the national currency.
4. Supply shocks and production cuts: infrastructure damage, energy disruptions and transaction costs reduce aggregate supply; Since the estimates of the International Monetary Fund for 2026 indicate a contraction of 7.6% in the economy and an average inflation of 78.9%. In order to sustain inflation, a set of policies is necessary: reforming the budget structure and avoiding inflationary financing, practical independence of the central bank in harmony with the financial behavior of the government, facilitating the return of the export currency and removing trade barriers and maintaining the production capacity of the factories. Curbing inflation depends on breaking the feedback loop between financial disequilibrium, the decline in the value of the national currency and inflationary expectations through a coordinated financial and monetary policy.