Mohammad Rad, the CEO of the “Canada Iran Business Association” – The definition of poverty varies according to the circumstances and realities of life in different countries, but the ability to provide basic necessities of life is usually use to determine the poverty line. In European countries, for example, someone who can’t afford to pay €746 monthly to meet their daily needs is considered poor.
However, United Nations has other definitions of poverty. For instance, access to clean water, access to internet, access to educational facilities or free political affairs are among the identifying factors of poverty in society provided by UN.
The latest global statistics indicating 22% of the worldwide population, or around 1.3 billion people in 107 countries live in poverty, of whom 689 million people live in extreme poverty.
The figures do not merely apply to developing or underdeveloped countries. There are 38 million people in the United States who live below poverty line. However, definition of a poverty line in an African country is 1.9 USD daily, while in the United States is 33.26 USD. The World Bank figures estimates the Covid-19 pandemic would increase the world’s poor population by between 1.5 and 8 percent.
When the news of the outbreak of new viral disease was first heard in a Chinese city, few people imagined its dimensions to the extent that we are currently faced. A mutant virus which is easily transmitted due to its unknown and advances features and any human crowd or accumulation may elevate its contagion severity and cause to end of life quickly for a percentage of infected people. These features were adequate to affect almost all social-economic relations of countries in an unprecedented way, and in addition to a global health crisis leads to a major economic crisis in front of the entire human community. Many initially concerned about which sectors of economy might be most affected and overshadowed?
But over time the main question shifted to which sectors might be survived? From tourism and transportation industries which were the first victims of the virus to construction and food industries and even the sport tournaments, all suffered huge losses and serious injuries.
This virus caused some economic events which had not be experienced before or at least were very scarce. One of these strange events occurred in the oil market. Industries which utilize crude oil as raw material were so weakened by Covid-19 outbreak that their demands for oil reached the lowest level in recent decades, consequently demand for oil plummeted. But on the hand, oil production and supply could not be stopped or reduced immediately, due to inherent nature of the oil industry, therefore the market balance became such volatile that the future price for Texas oil reached to -40 USD, in the late of April 2020. Indeed, since there was no oil demand for a while, and the potential for closing and reopening the oil wells is almost negative, the extracted oils from the wells located inside United States which were far from the storage facilities with oil storage capacity and possibility, translated into industrial waste.
Therefore, producer even had to pay persuading someone to take that oil for their own and store or utilize it somewhere. However, this unexpected event lasted for a short time and for a specific kind of oil, but it has also many economic lessons for the market.
But, now in the last days of 2021, the situation is turned, and demands for oil has elevated in a such a manner that at the time of writing of this manuscript the price has reached to 82 USD per barrel. Experts, also predict a rising trend in oil prices.
The first raw accusation of inflation?
Anyway, inflation is a monetary phenomenon and increase in the monetary base and cash flow are the most significant causes for inflation. Therefore, the first raw accusation of inflation is supposed to be central bank (or treasury), under normal situation. Monetary and exchange policies are regulated in the central bank; therefore, central bank should approach to the inflation targeting using appropriate tools.
However, in 2020 the situation changed in Canada, and it was appeared that liquidity policy was not completely under the control of Ventral Bank of Canada, but in one hand cash flow increase and government aids and one-year cessation of industry cycle and labour deficit on the other hand, seasoned with oil price elevation, led to unprecedented inflation in Canada.
Meanwhile, supply and demand imbalances in the market has led to an inflation bubble, as well. Regardless of accommodation adventure, which itself demands writing additional tens of pages, but it is feasible to find traces of the price bubble exploding, even in basic commodities, such as food! for many years, everyone experienced and now is familiar with inflation phenomenon, in Iran; Iran economy is potentially one of the few economies which has experienced double-digit inflation during a long time period of several decades, and continues to do so with no sustainable solution.
The central Bank has no full control over monetary and exchange polices in Iran, as well, which leads the budget policy maker to be involved in inflation problem and cause one of the most significant chronic reasons of inflation in the country.
Cash flow is one of the most important and most relevant political economic variables in Iran and budget deficit is the main cause this problem. Cash flow volume is recently multiplied by 2.5 times in less than 2 years, and with significant decrease of foreign incomes and national exchange deficit, the cash flow impact on inflation has been augmented and its related time duration was shortened.
Inflation outlook in near future:
Declaring the Delta type Covid-19 in the world, International Monetary Fund (IMF) has also warned of tension in supply chain, inflation rising, food and fuel costs in the countries.
Economic growth of Canada (according to GDP adjustment for inflation):
Registered rate for last year: -5.3%
Predicted rate for recent year: 5.7%
Predicted rate for next year: 4.9%
Inflation rate for Canada (average consumer price index):
Registered rate for previous year: 0.7%
Predicted rate for recent year: 3.2%
Predicted rate for next year: 2.6%
Unemployment rate in Canada:
Registered rate for previous year: 9.6%
Predicted rate for recent year: 7.7%
Predicted year for next year: 5.7%
Considering all provided statistics, it is expected that 2022 is inflation exploding year in Canada which would impose severe pressure to Canadian population. However, behind these events, 2022 could be a fruitful year for those suppliers who know the market demand would move toward which direction.
Situation in Iran:
It should be said that price inflation is depend on two factors in the sort-term:
The new monetary and budgeting policy makers and decision makers team, including embers of money and credit council in addition to all authorities participating in budgeting in one hand, and related political issues to international sanctions. The riskiest scenario is when new decision making team does not start a better trend and they are not still concerned about inflation, in addition to persistence of sanctions for longer-term with no significant increase in national exchange income. In this case, regarding the worrying government budget deficit, unexperienced heavy inflations could be expected which have more terrifying consequences. In fact, there is possibility that Iran economy would fall in a cycle where cash producing, government budget deficit and inflation increase automatically and amplify each other. This impaired cycle would end up to destructive super inflations which it is hard to survive from such phenomenon.
The most contingent scenario is that significant improvement would not have happened in economic and monetary and budgeting team in Iran, but sanction severity and international limitations would be mitigated due to political negotiations. In this case, we would back to the situation that Iran economy has experienced several times before, and resolving of the problems has been postponed due to such a situation. The new Government, can provide a temporal stability using synthetic exchange price stability, under this condition. The stability which of course, would be much shorter than the past, concerning the budget tragedy and existing imbalances in banking system, and by the way fading the emerging competitive advantage in recent years. A relatively depression in the assets market and significant import elevation, could be expected in this scenario. But finally, after a short period should be expecting the exchange price exploding and recurrence of high inflations.
What IFM says?
The decrease in global economy improvement, especially in low-income countries, has also led to limit their access to the Covid-19 vaccines. in the introduction part of IMF report, Gita Gupinat, the IMF director of economic researches, has stipulated: overall, the risks of global economic outlooks have been increased and trade policies have been more complicated. Meanwhile, situation change, has elevated uncertainties in economic outlooks of countries.
This situation indicates the economic hard days of developed countries in the short run, which is partly related to supply chain disorders.
Kindly Regards
Mohammad Rad
