General increase in the prices of goods and services is one of the most pressing problems of the Iranian economy.

Inflation is a fall in the market value or purchasing power of money. This is equivalent to a sustained increase in the general level of prices. Inflation is the opposite of deflation. The term is applied to a given economic region in which a currency is used; however it may apply to smaller or larger regions also.
In some contexts the term inflation is used to refer to an increase in the money supply (liquidity), although this concept is also often referred to as monetary expansion. There is some dispute between different economic schools of thought as to which of these is “real“ inflation, for prices of goods and services in the currency in question to rise, or for the money supply to increase.
These differing definitions of inflation relate to whether it is viewed as a certain economic process, or if it merely is used to refer to a particular set of economic symptoms that result from underlying processes. Both forms of usage of the term are reasonably common.
In some contexts the word inflation is used to mean an increase in the money supply, which is seen as a cause of price increases. Some economists still prefer this meaning of the term, rather than to mean the price increases per se. However, in this article, the word inflation is used to refer to a general increase in prices, unless otherwise specified.
As Donyaye Eqtesad reports, general increase in the prices of goods and services is one of the most pressing problems of the Iranian economy. But Iran’s economic headaches are not limited to just inflation. From the point of view of the general public, inflation and unemployment are indeed two of the most important economic issues, yet from the point of view of economists, other matters such as economic growth, volume of investment, respect for ownership rights, the level of state interference in economic activities, as well as bank savings account rates are equally important.

Debate
People and economists in the US started to debate on the most urgent issues facing their economy several years ago. Interestingly, inflation was the most important issue raised by the general public; yet economists think otherwise. They also had in mind the future growth of the economy through an expert perspective.
While people are concerned about the impacts of inflation on their livelihood, economists try to delve into the matter and find the root causes of such problems. They are concerned about continuation of such malaises and have the capacity and the means to stop them from recurring.
In the principles of democracy, including in Iran, the legislative is comprised of representatives that are elected through public vote so as to reflect their needs, concerns and priorities. Lawmakers are not necessarily the most knowledgeable of all, yet since they are presumably popular in a certain region they are trusted by those who have voted for them.
On the other hand, there is the executive body which depends largely on bureaucracy and expert opinion. If lawmakers are in direct contact with the general public, government officials have to deal with various shades of opinions and expertise on a regular basis.
In a perfect system, the government represents the expert-oriented system and parliament represents the demands and interests of the general public. As long as such a compromise is in place (the vision of the experts, the elite and the general public going in the same direction), the best results will be achieved. However, the problems surface when these forces are in collision. This happens when government and parliament are in dispute. In other political systems there are legal solutions for such disparate opinions. In certain systems the elected president can dissolve parliament and do as he sees fit afterwards. In others, the government comes from the heart of parliament, and can easily be replaced or changed by lawmakers.

On how to deal with the problem of inflation, public opinion would say that the best option would be through price controls.

Disparities
Iran is yet to find a way to resolve such disparity in its legal system where lawmakers and government officials have to seek mediation through other channels in order to sort out their differences.
Indeed the general increase in prices of goods and services is still a hot debate in the Iranian society and among the political and decision-making circles.
As a norm, public protests against inflation usually come from within parliament where the elected lawmakers are bound to send the message to the government with regard to public concerns. This puts too much pressure on decision makers in the executive body, whenever the latter’s representatives and lawmakers meet.
On how to deal with the problem of inflation, public opinion would say that the best option would be through price controls. In this sense, it is natural that a similar reply would be made by lawmakers who represent public expectations.
Controlling general prices also sends a clear message to the officials in charge, as otherwise it reflects failure on the part of the government. Also, the government is pushed by parliament to control the general increase in prices as part of efforts to fight inflation and this has been the case for sometime now.
The truth of the matter is that today’s inflationary situation is not unprecedented. More than a decade ago in 1993, inflation was high and the government of Akbar Hashemi Rafsanjani was under immense pressure by parliament to do something about it. Those who were backing the government tried to justify the general increase in prices by blaming the Iraqi-imposed war which ended in 1988, calling on the people to remain patient. However, lawmakers were forced to stand against the government so much so that some of them even urged that the responsibilities of the Economic Council with regard to the pricing of public goods should be taken away.
The pressure from lawmakers led to the biggest strategic mistake that was ever committed by the government, i.e., the counterproductive practice of price controls, implementing punitive laws and establishing the State Inspectorate Organization. Such a strategic mistake was of course welcomed by government supporters and the opposition groups, leaving the expert-oriented system to its own devices.

Not Productive
In general, most economists regard price controls as counterproductive in that they tend to distort the functioning of the economy by encouraging hoarding or creating scarcity, decline in the quality of goods and the use of black market exchanges.
Another criticism of price controls is that they work only as long as they are in force and their removal tends to produce further inflation.
Nowadays, the very same circumstances prevail with a difference: that is the government instead of adopting an expert stance when dealing with parliament, has become even more committed to the demands and concerns of the general public (i.e., price controls) and has even beaten parliament to this end.
Such a situation has the potential to misdirect joint efforts to control general prices or even resolve certain problems in the economy by the government and parliament. Naturally, the first victim with regard to price controls would be the production sector, both private and state-owned. Apparently the government has hopes to control general prices by making the prices of goods and services fixed. However, it is hoped that the government will not repeat the same mistake the Rafsanjani government did more than a decade ago that largely laid emphasis on the independence of the State Inspectorate Organization without seeking advice from economic experts.
Nowadays, the fight against inflation serves as an important test for the independence of the government that is under immense pressure by parliament to deliver on its promises.
Only time will reveal what kind of measures President Mahmoud Ahmadinejad will take to tackle inflation or stop the general increase in prices of goods and services. But the question that still remains is whether the executive body will take the erroneous path of instituting wage and price controls, which set minimum prices to prevent deflation, and to maintain a particular item or service in production for the sake of popularity, or adopt the expert-oriented system that aims to eliminate the root causes of inflation?