Estimation of Energy Subsidy Targeting on Commodity Price Index

The energy subsidy has a remarkable share of GDP (about 10 percent) in Iranian economy, and its reducing affects inflation which its estimation can help policymakers to make the best decision. Thus, this study employs the social accounting matrix in order to study about the inflation effected by increasing the prices of energy. The importance of this method is that we can estimate the exceptional and psychological effects of inflation by regarding the families life cost indicators as much as price indicators in different product sectors. The estimated inflation which is resulted by adjusted prices will be 36.8 percent. Since the amount of energy subsidies and their effects has become a critical problem in Iranian economy, Iranian government, like other countries, must prepare an improved, complete and systematic program regarding financial limitation, a suitable social security system and the improvement of energy consumption function in production and transportation sectors.