In this lesson you will learn what money is, what purchasing power means, and how inflation is defined and measured; by the end, a labelled hypothetical example will show why idle rial savings can lose part of their real value over time.
Definitions
Money is a tool a society uses for three jobs: buying and selling goods and services (a medium of exchange), measuring and comparing the value of goods (a unit of account), and holding value for future use (a store of value). In Iran, the rial is the official currency, though everyday pricing of many goods and services uses the informal unit "toman" (one toman equals ten rials).
Purchasing power describes how much real goods and services a given amount of money can buy. If 100,000 tomans buys less this year than it bought last year, that amount's purchasing power has fallen, even if the figure on the banknote or bank account has not changed at all.
Inflation is a general and sustained rise in the price level across an economy; on average, the price of the basket of goods and services households typically consume rises over time. Statistical agencies measure this with a "Consumer Price Index" (CPI): each month, the price of a fairly fixed, representative household consumption basket (including food, housing and rent, clothing, transport, home energy, and similar items) is collected and compared with earlier periods.
Inflation is usually reported in three ways: monthly inflation (this month's price level versus last month's), point-to-point (year-on-year) inflation (this month versus the same month one year earlier), and the average annual inflation rate (the average price change over the past twelve months compared with the twelve months before that). All three describe the same underlying reality from different time angles, and none is sufficient alone; reading them together gives a fuller picture.
How Inflation Erodes Purchasing Power
Suppose you hold a sum of money as cash or in a low-interest deposit. If the general price level rises by, say, 30 percent over a year while your money stays the same or grows at a rate below 30 percent, that same sum buys fewer goods and services at year's end than it did at the start. This is called "erosion of purchasing power." The key point is that the nominal figure of the money does not change; what changes is that figure's real capacity to buy goods and services. This is why economists distinguish between "nominal value" (the number on the account) and "real value" (what that number actually buys).
A Numerical Example
Suppose at the start of the year you hold 1,000,000 tomans in cash, and a kilogram of rice costs 100,000 tomans; that means you can buy 10 kilograms of rice. If inflation over the year is 50 percent and rice prices rise by the same proportion to 150,000 tomans per kilogram, that same 1,000,000 tomans buys only about 6.7 kilograms of rice by year's end; its purchasing power has fallen by roughly 33 percent compared with the start of the year, even though the nominal amount of money is still exactly 1,000,000 tomans.
Now suppose that instead of holding cash, you had placed that money in a deposit paying 20 percent nominal annual interest; by year's end it would total 1,200,000 tomans. But because inflation (50 percent) exceeded the nominal interest rate (20 percent), the "real return" (roughly, nominal return minus inflation) is still negative; that is, even after earning interest, the 1,200,000 tomans buys less than the original 10 kilograms of rice. This example shows that earning interest alone is no guarantee of preserved purchasing power; what matters is comparing the interest rate with the inflation rate over the same period.
In Iran's Market
In Iran, both the Statistical Center of Iran (SCI) and the Central Bank of the Islamic Republic of Iran (CBI) independently publish inflation reports; because the two institutions' consumption baskets and weighting methods differ slightly, their final figures for the same month are not identical. For example, in the report for the Iranian month of Khordad 1405 (published in early Tir 1405, i.e., late June 2026), the Statistical Center put point-to-point inflation (versus Khordad 1404, a year earlier) at 88.6 percent, while the Central Bank put the same measure at 83.1 percent; the Statistical Center's average annual inflation rate for the same month was 62 percent.
This gap, and the size of the figures themselves, explain why the relationship between bank deposit interest rates (set or approved periodically by Iran's Money and Credit Council) and the inflation rate is a constant subject of analysis among Iranian economists: whenever deposit interest stays below the inflation rate, the real value of those savings falls over time. This is why many Iranian households consider, alongside bank deposits, other assets such as gold and gold coins, foreign currency, stocks, investment funds, or housing, a topic the next lesson in this series, "What Is an Asset?", will cover.
Common Mistakes
One common mistake is comparing a "salary or income increase" directly with "price increases" without accounting for inflation: if someone's salary rises 20 percent over a year but inflation over the same period is 40 percent, that person's real purchasing power has actually fallen, even though the salary figure grew larger. Another common mistake is treating "monthly inflation" and "point-to-point inflation" as the same thing; a falling monthly inflation rate does not mean prices are dropping, only that they are rising more slowly than the month before.
Summary
Money is a tool for exchange, valuation, and storing value; purchasing power shows how much real goods and services a given sum of money can buy; and inflation is the general rise in the price level, measured through the Consumer Price Index. Whenever the growth rate of money or its return falls behind the inflation rate, that money's real purchasing power declines, even if its nominal figure has grown. This is the first lesson in the Sahmino Academy series; the next lesson maps out the range of assets available to an Iranian household.
This content is for information and education only and does not constitute investment advice. All figures carry a specific as-of date and may have changed since; verify information against official, up-to-date sources before making any decision.
Market update
Market update
Market update
Market update