Elevated Inflation A Concern
Food inflation has been a major issue in Iran over the past year or so. According to the latest data released by the Central Bank of Iran (CBI), headline inflation came in at 28.1% y-o-y in September 2012, up from its average of 25.4% over the first five months of FY2012/13 (fiscal year running from 21 March 2012-20 March 2013). The increase was largely due to a 38.7% y-o-y spike in prices within the 'food and beverages' component (which accounts for 28.6% of the consumer price basket), while housing and transportation prices (accounting for 28.5% and 12.0% of the basket, respectively) increased 14.5% y-o-y and 20.7%.
Iran's food and drink sector has not attracted as much investment as some regional markets from regional multinationals such as Carrefour MAF over the past few years. Investing significant sums is more challenging in Iran than in a lot of the wider region. However, given its size, with a population of about 75mn, there are still going to be some strong opportunities going forward in areas such as retail. Despite trade sanctions, a number of Western brands including Coca-Cola are still available, competing with local brands such as Zamzam Cola .
The Central Bank of Iran stopped publishing data on consumer price inflation divided by its main components in April 2012 . That said, the bank announced that consumer price inflation came in at 23.5% y-o-y in August and 22.9% in July, while the Iranian parliament speaker Ali Larijani estimated the rate to stand at 29.0% y-o-y in September. However, external observers believe that, due to the collapse in the value of the rial, the actual rate stood at between 46%-69% in y-o-y terms at the beginning of October. Anecdotal evidence appears to justify such bearish assumptions, with the cost of yogurt having reportedly trebled since last year, and the price of milk in Tehran having risen 9.0% in one day on October 5. Moreover, several reports show that the price of meat has soared well out of reach of the country's middle class, with Iranians buying bread to feed their famili es instead.
|Really Tough Period For Consumers|
|Iran Consumer Price Inflation (average) - Historic & Forecast - 2005-2017|
These remain worrying times for consumers in Iran with high inflation affecting their purchasing power and making the purchases of staples more expensive . Our Middle East and North Africa (MENA) team expects inflation to come down over the next few years as the first chart illustrates. Moreover, there is still plenty of room for incomes to grow in Iran. With its population of around 75mn, there is still a lot of potential in its consumer sector.
|Longer-Term Outlook Looks Brighter|
|Iran GDP Per Capita (US$) - Historic & Forecast - 2007-2017|