Structural inflation and its exit policies

Abstract

Factors causing inflation in the economy can be divided into two categories: long-term and short-term factors. The leading cause of inflation in the long term, which has led to higher average inflation in Iran compared to other countries, is the high liquidity growth over production growth. Income-expenditure disparity in the macroeconomic scale means increased expenses over national income growth. On the other hand, the cause of inflation fluctuations around the long-term trend in the economy in the short term depends on the anchor of inflation expectations (which is dependent on the unofficial exchange rate in Iran's economy) and the reaction of the monetary policy maker to these fluctuations. According to the distinction, the solutions to control inflation can be expressed in the short-term and long-term. In particular, measures that have an impact on inflation control in the short term include minimizing exchange rate fluctuations around the long-term trend of the real exchange rate, IRR governance and strengthening monetary policy by the central bank, and measures with a long-term impact in cases of quantity control and monitoring The quality of liquidity, reforming the banking system and unhealthy banks, reforming the budget structure and improving the operating balance, not using a pricing strategy to curb inflation, correcting the imbalance of pension funds, reducing the amount of available liquidity and changing the nominal anchor are summarized.