In the 1990s Iran experienced inflation rates comparable to today, yet the economic and social consequences were far less severe. Unlike many episodes of global inflation that are expected to be transitory, inflation in Iran is prolonged, persistent, and not self correcting. Simple monetary contraction therefore tends to suppress output more than it restrains prices. Currency depreciation raises import costs and produces a price realignment that, in an import dependent economy, generates self reinforcing inflationary dynamics.
This study first tests a modified structural inflation hypothesis—rooted in inelastic food supply and export price volatility—using quarterly data for 2000–2021, and then evaluates a monetary inflation hypothesis. Results show base money expansion remains inflationary, reflecting weak transmission from monetary policy to the real economy. Food price increases linked to price reforms act as the main structural transmission channel, while export price swings amplify inflation. When export demand is satisfied by diverting goods from the domestic market, monetary policy effectiveness becomes critical. Inflation inertia, which slows the response of inflation to policy actions, is the primary factor sustaining Iran’s inflationary trajectory. Sustainable disinflation requires targeted monetary tightening combined with structural agricultural reforms and exchange rate stabilization.