Iran's annual inflation rate rose to more than 25 percent in May, the central bank said, highlighting a growing economic problem facing President Mahmoud Ahmadinejad ahead of next year's election.
Consumer prices in the world's fourth-largest oil producer have been climbing steadily over the past year or so, fuelled by profligate spending of an influx of petrodollars combined with interest rates well below inflation, economists say. The year-on-year rate reached 25.3 percent in the year to May 20, up from 24.2 percent in April and 16.6 percent in the same month of 2007, according to central bank statistics.
Ahmadinejad came to power in 2005 on a pledge to share out Iran's oil wealth more fairly but the conservative president has come under fire from many lawmakers, media and the public over failure to rein in rising prices.
An Iranian political analyst who declined to be named said economic woes were the biggest headache facing the government on the domestic front, overshadowing its nuclear stand-off with the West which has led to three rounds of UN sanctions on Tehran.
Conservatives retained their clear parliamentary majority in a March election but analysts expect the assembly to become increasingly critical of Ahmadinejad's economic management ahead of next year's presidential election, when he is widely expected to stand for re-election.
The president has dismissed the criticism arguing rising inflation is a global problem and saying his government is tackling the issue. The central bank said on its website www.cbi.ir that prices rose by 1.7 percent in the Iranian month to May 20 following an increase of 3.1 percent the previous month.
Average inflation over the past year compared with the previous 12-month period was 19.8 percent, the central bank said, up from about 12 percent in mid-2005. Analyst Saeed Laylaz said he expected this inflation measure to soon hit 20 percent, for the first time in a decade.
He blamed high liquidity growth and increased government expenditure and advocated a return to fiscal discipline, economic liberalisation and privatisation to combat the problem. An Iranian poverty expert said he believed real inflation was even higher than the one published by the central bank, saying there was upward pressure especially on food prices. "It is serious for people with low wages who have a hard time making ends meet," he said, speaking on condition of anonymity.
But he also said extensive social protection in Iran, including subsidies on bread and other food items, helped cushion the impact for poor people. "That will alleviate some of the hardship," he said.
Iran has reaped windfall gains in recent years from record world oil prices and says its economy grows by more than 6 percent annually, despite tightening international sanctions over nuclear work the West fears is aimed at making bombs. Analysts, however, say the nuclear stand-off is making foreign firms more wary of investing in the Islamic Republic.