Inflation at 83.9 Percent Has Outrun Money Growth of 53.3 Percent; the 30.6 Point Gap the Printing Press Did Not Create (Friday, 31 July 2026)

Put two numbers side by side, then look at the distance between them. According to Central Bank of Iran data, the country's broad money supply reached about 15,581 thousand billion tomans (hemat) at the end of the Iranian year 1404, which closed in March 2026, growing roughly 53.3 percent on the prior year. Over the same stretch, the Statistical Center of Iran reported year-on-year inflation for Tir 1405 (the month ending late July 2026) at about 83.9 percent, and annual average inflation at about 61.4 percent.

Prices, in other words, have run roughly 30.6 percentage points faster than the stock of money. That is itself the story. If inflation were simply a direct reflection of money printing, those two figures would sit close to one another. They do not. And it is precisely that distance that shows where the real mechanism of Iranian inflation operates.

Background

The most common misunderstanding is to equate broad money with printed banknotes. Notes and coins are a very small share of it. Broad money, known as M2 and called naqdinegi in Persian, is mostly numbers sitting in bank accounts. It has two parts: money proper, meaning notes in the public's hands plus demand deposits, and quasi money, meaning term and savings deposits, money that exists but is not currently circulating.

Most new money is created not by a printing press but by the banking network through lending. When a bank lends to you it does not take a banknote from anywhere; it simply records a number in your account that did not exist before. We unpacked the full mechanics of this bank money creation, the money multiplier and the link between the monetary base and broad money in our lesson on Money Supply and the Monetary Base.

Four sources have driven most of Iran's liquidity growth: the government budget deficit and its financing from banking resources; mandated lending, meaning loans banks are obliged to extend regardless of economic merit; bank balance sheet imbalances, since a bank carrying frozen assets and accumulated losses must borrow from the central bank to pay depositors their interest; and the compounding of deposit interest itself, so that part of liquidity growth is simply interest accruing to money that already exists.

The pace has slowed a little without breaking: liquidity growth in Ordibehesht 1405 (May 2026) was reported at about 52 percent, still above 50 percent.

The numbers

One methodological point deserves to be stated plainly: the 53.3 percent figure covers the year ending March 2026, while the 83.9 percent figure is year-on-year for Tir 1405. The two windows do not line up exactly, so the comparison gives an approximate picture rather than a precise equation. But the direction is clear, and the May 2026 reading does not change it: prices have moved ahead of money.

The drivers

Velocity and expectations. Money parked in long-term deposits generates less inflationary pressure. But when confidence in the future value of money erodes, deposits leave accounts and turn into goods and assets; velocity rises, and the same stock of money produces more inflation. Put another way, expecting inflation is itself a cause of inflation. A large share of that 30.6 point gap is built right here.

Production that does not keep up. If real output also grows, part of the new money is absorbed before it reaches prices. The problem becomes acute when liquidity grows more than 50 percent while output stays roughly flat; all the pressure then lands on prices.

The exchange rate channel. In an economy that imports raw materials and part of its consumption basket, the exchange rate passes straight into prices. On 8 Mordad 1405 (30 July 2026) the free-market dollar stood at 192,400 tomans while the Exchange Center remittance rate was about 152,786 tomans, a spread of nearly 39,600 tomans. That spread is an independent price transmission channel in its own right, because some imports are financed at the preferential rate and some at the free rate.

And the policy layer. On 1 Mordad 1405 (23 July 2026) the Central Bank announced the second stage of an increase in the reserve requirement ratio, lifting it by 1.5 percentage points in total across the two stages, a tool that directly constrains the banking network's capacity to lend and therefore to create money. In the same week, on Monday 5 Mordad 1405 (27 July 2026), the Central Bank injected 60 thousand billion tomans into the interbank market through open market operations. Together the two describe a policymaker trying simultaneously to brake money creation and to cover the banks' short-term liquidity shortfall.

Where does new money go?

This is the part that matters most to anyone following markets. New money does not spread evenly and all at once; it travels a route. It typically enters assets with limited supply and high liquidity first: foreign currency, gold and coins. It then moves to larger and slower markets, meaning equities, and finally to housing, the heaviest and slowest market of all.

That is why liquidity surges usually produce a sequence of market rallies rather than a simultaneous one. And it is why anyone who always chases the market that has just risen usually arrives late.

If the yardstick is the long run, the measure should not be reported inflation but liquidity growth, because that is what shows the true scale of monetary dilution. Between 1380 and 1400 (2001 to 2021) liquidity multiplied about 119 times. Over the same period, according to a summary by SENA, the capital market news agency, the Tehran Stock Exchange main index multiplied about 382 times and gold coins about 190 times, while Tehran housing multiplied about 96 times, bank deposits about 38 times and the free-market dollar about 35 times. Only two asset classes outran liquidity growth over those two decades; the rest lost purchasing power despite impressive nominal gains.

Three caveats bound that conclusion. It is a twenty year average, and over shorter windows the ranking changes completely. The main index is nobody's actual experience, since any individual's return depends on stock selection and timing. And the higher returning assets carried higher volatility and risk, with the bourse suffering several drawdowns of more than 40 percent within that same period.

Outlook

As long as liquidity grows above 50 percent and output does not keep pace, expecting low inflation is not a realistic expectation. Tools such as a higher reserve requirement work on the supply side of money and their effect shows up with a lag of several months; but that 30.6 point gap sits mostly on the expectations and exchange rate side, and those two are not settled by monetary tools alone. A durable narrowing of the spread between the free-market dollar and the Exchange Center rate, and a return of money into term deposits, are the two signs that would indicate velocity has genuinely slowed. These are an analytical framework and an assessment, not a numerical forecast.

Bottom line

Inflation in Iran is not a price phenomenon; it is a monetary phenomenon that shows itself in prices, but its conversion rate is not fixed. This year's figures say so plainly: money grew 53.3 percent and prices grew 83.9 percent. That extra 30.6 points was built by expectations, velocity and the exchange rate, not by a printing press. The one thing to take away: measure the rial value of your assets against liquidity growth, not against your own number from last year. That is the only way to tell whether you actually moved forward or your number simply got bigger.

What to watch

The Central Bank's monthly reports on liquidity and monetary base growth, the Statistical Center of Iran's consumer price index for Mordad (August 2026), the effect of the second reserve requirement stage on bank balance sheets, and the spread between the free-market dollar and the Exchange Center rate on our prices pages. Dated scheduled items are tracked on the Sahmino market calendar.

This report is analytical and educational and is not advice to buy or sell any asset. Inflation figures published by the Statistical Center of Iran and the Central Bank are not always identical; this report uses the Statistical Center of Iran's releases.