April 24, 2011 / 12:41 PM / 8 years ago

Iran food prices up 25 pct, twice inflation

* Iranians feel pinch from subsidy cuts

* Demand for gold up as savers seek safe haven

* Food and gold prices both high on global markets

TEHRAN, April 24 (Reuters) - Food prices in Iran have risen almost 25 percent in one year, official figures released on Sunday showed, twice the overall official rate of inflation.

Figures from the Central Bank of Iran, carried in Iranian newspapers, showed the bank’s food basket cost 24.46 percent more in the first month of the Iranian year, starting March 21, than in the same month a year ago.

Iranians are feeling the pinch not only from global food prices rises [ID:nN11148019] but also from the government’s decision to slash subsidies on essentials like food and fuel — a move which increased the price of gasoline by between 400 and 700 percent overnight in December and caused utility bills to soar.

President Mahmoud Ahmadinejad has said the subsidy cuts will not impact inflation and that monthly cash payments of 450,000 rials (about $45) per person will enable Iranians to avoid any hardship.

But despite government reassurances, retail prices have been rising steadily from a 25-year low of 8.8 percent in August — still way below 2008 levels of around 30 percent but on a consistently upward trend.

Iran’s official inflation rate was 12.4 percent during the last Iranian year which ended on March 20, but many Iranians believe prices are rising much faster in reality.

The new food price data shows that inflation is hitting family budgets, with the price of some staples soaring. Eggs cost nearly double what they did a year ago, the figures showed. A common type of bread rose 50 percent after state wheat subsidies were cut.

One indication that Iranians fear a rise in inflation is a significant increase in demand for gold, the safe-haven precious metal which, like food, has seen soaring prices on global markets. [ID:nL3E7FM0BI]

The former head of one of Iran’s main banks, interviewed in Hamshahri daily, said the rise in demand for gold was due to “wandering liquidity” as wealthy Iranians found it harder to invest abroad due to sanctions and stagnating property prices made real estate less attractive.

“The best market for keeping savings seems to be the gold market and the global price hike of gold had also encouraged this thought,” Ahmad Hatami Yazd, former managing director of Bank Saderat, said.

Ahmad Vafadar, head of Iran’s gold and jewellery trade association, told the ISNA news agency that fears about falling bank interest rates had caused many people to withdraw their cash and buy gold. The government recently decreed a cut in the rate of return on bank savings [ID:nAMI230925] and some Iranians believe it might be reduced further. (Reporting by Mitra Amiri and Ramin Kalantari; writing by Robin Pomeroy; Editing by David Cowell)

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