Examining the Requirements of Single-digit Inflation in Iran's Economy

This paper examines the important factors in determining inflation and the requirements to achieve single-digit inflation in Iran. For this purpose, this study has implemented the theoretical foundations & empirical studies of inflation, the experience of transition for the countries with high inflation rates, economic conditions of Iran and the appropriate econometric model. As to be expected, to achieve single-digit inflation, budget deficit control policies with an emphasis on cost reduction and increase in tax revenues, controlling the volume of money, privatization, structural reforms, reducing the share of oil production in the country and a national resolution is required. Examining the important factors involved in determining inflation in Iran, and using vector auto regression models, demonstrate that liquidity has the greatest effect on the rate of inflation both in the short and the long run. The other determining factors are budget deficit, tax revenues and GDP growth rate. Based on the estimation model, and assuming the same trend of variables in the past 10 years to be held, the inflation rate for 1394 equals to 23.5%. As a pessimistic scenario, if the same past monetary and fiscal policies are applied, the predicted inflation rate for 1395 will be 41%.