Iran's inflation hits World War II levels, deepening economic pain

Year-on-year inflation in Iran reached a level in May unseen since World War II, underlining the economic pain average Iranians face as the Islamic Republic worries about the war with Israel and the United States restarting.

A report Monday by Iran's Central Bank represents the first official acknowledgment of what Iranians shopping, paying for a taxi or visiting a medical clinic already know: The rial currency is battered by the war and uncertainty around it resuming.

Meanwhile, longtime problems of economic mismanagement and government corruption also appear to be dragging down Iran's oil-backed economy as it remains under a U.S. naval blockade.

Economic pressure in the past has sparked nationwide protests, something Iran's theocracy has been trying to avoid since a crackdown on demonstrators in January killed over 7,000 people, according to activists' estimates.

But even as hard-liners hold gun-handling workshops and organize marriages under the shadow of a ballistic missile to bolster spirits, experts note that new demonstrations could emerge if people find themselves priced out of feeding their families.

"I have no doubt that if Trump leaves (Iran without a formal peace deal) ... most probably, we will see something like January by the end of summer because of the economic and social situations," analyst Mohsen Jalilvand said in a video published by Iran's Fararu news website.

'We will definitely have higher prices'

Iran's Central Bank said the consumer price index, which measures a basket of goods and services, reached 77.2% in May compared to the year before. It added the rate is 8.5% higher than in April. Inflation in daily and general needs — like medicine, taxi fares, tobacco and communication fees — rose 113.8% from the year before.

Iran only saw worse inflation in 1942 during World War II, sparked by the British and Soviets invading the country and taking over its railway, disrupting food supplies. The lack of food, worsened by a poor harvest, sparked hyperinflation and a famine. Hunger and a typhus outbreak killed many.

A private economic think tank in Iran, the Bamdad Institute of Economic Studies, described the current figures as "an unprecedented rate since World War II." Iran's Central Bank did not acknowledge the significance of the figures.

Airstrikes this year have greatly damaged Iranian businesses and its oil industry, Meanwhile, the U.S. blockade has been targeting Iranian crude oil shipments trying to reach the international market, a key source of hard revenue. Tax revenues have been depressed by businesses struggling even after the fighting paused.

The rial, which traded at 32,000 to $1 in 2015, now trades at over 1.7 million to $1.

"We will definitely have higher prices," Iranian President Masoud Pezeshkian warned in May. "We are fighting and we must accept this hardship."

Past economic woes have led to protests

In 2017 into 2018, rising food prices sparked demonstrations that killed over 20 people and saw hundreds arrested. An increase in government-subsidized gasoline prices caused protests that saw over 300 people reportedly killed.

Then came the protests over the rial at the start of this year, the most intense demonstrations to shake the Islamic Republic since its 1979 revolution and chaotic years that followed.

Tehran-based economist Saeed Leilaz, speaking to The Associated Press, warned that annual inflation in Iran could reach 80%.

"Iran's society cannot tolerate above 25%" annual inflation, he said.